Greetings, and welcome to the Collegium Pharmaceuticals Second Quarter 2020 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alex Dasalla, Manager, Investor Relations and Corporate Communications. Thank you. You may begin.

Welcome to Collegium Pharmaceutical's Second Quarter 2020 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 impact of the COVID-19 pandemic; the risks that we may not 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 investigations, 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 us. Confirmed by Xtampza ER growth and the impact of the Nucynta acquisition, Collegium delivered strong financial results in the second quarter and made progress versus our strategic objectives. This is a testament to the resilience and adaptability of our people and operations and their commitment to making 2020 a transformative year for Collegium Pharmaceutical. Although the pandemic has forced our people to work differently, there has been no disruption to our essential operations and ability to supply the market. During this time, we have also been able to serve health care providers and patients. As of today, most of our home office-based employees are working on site, and the majority of our field force is engaging in some level of in-person customer interactions. Although the productivity of our field force is steadily improving, as is the quality of customer interactions, it continues to lag pre-COVID levels. As states began to open, we saw signs that in-person patient visits were increasing, but we believe that that momentum has been adversely impacted as infections increase in many states. We do not anticipate a return to normal for the remainder of 2020. Business highlights from the second quarter include: increased profitability; accumulated cash and paid down debt; grew Xtampza ER total prescriptions to 141,678, up 22% versus the second quarter of 2019; strengthened Xtampza ER's formulary position on the Optum RX national commercial formulary, which covers over 17 million lives. Effective July 16, Xtampza ER moved from being non-preferred to a preferred brand. This is the first major formulary position in which Xtampza ER is at parity with OxyContin. We continued to strengthen our patent estate with the addition of 2 new formulation patents covering Xtampza ER, one with an expiry…

Thanks, Joe. Good afternoon, everyone. With the closing of the Nucynta acquisition in the middle of the first quarter, this is the first full quarter that shows the impact of the Nucynta acquisition as well as our continued focus on financial discipline. During the second quarter, we generated $43.9 million in cash from operations and repaid $12.5 million of our term loan. Our June 30 cash balance increased by $29.5 million to $145.7 million from the March 31 balance. Total product revenue was $78.1 million for the second quarter of 2020. Xtampza ER revenue was $33.6 million, which is an increase of 29% from the second quarter of 2019 and an increase of 7% from the first quarter of 2020. The gross to net discount for Xtampza ER was 59.0% for the quarter. As discussed on prior calls, gross to net discount may be lumpy throughout the year and is expected to be in the low 60% range for 2020. Nucynta revenue was $44.5 million for the second quarter of 2020, which is a decrease of 1% from the first quarter of 2020. The decrease in Nucynta revenue was partially offset by an increase in wholesaler inventory of approximately 1 day. Excluding amortization of the Nucynta intangible asset, total cost of product revenues were $12.9 million for the second quarter of 2020, which is approximately 17% of revenue. This includes a 14% royalty to Grunenthal on Nucynta revenue. Operating expenses were $31.8 million for the second quarter of this year, which is a 6% decrease from the first quarter of this year. Our GAAP net income was $8.1 million for the second quarter of 2020 compared to a GAAP net loss of $4.7 million for the prior year quarter. Our non-GAAP adjusted income was $33.2 million for the second quarter of 2020 compared to $3.1 million for the prior year quarter. As you know, our historical practice is to provide annual guidance, and we are not committed to updating guidance on a quarterly basis. However, in light of the uncertainty in the market due to the potential impact of COVID-19, and given the visibility we have in our business, we are reaffirming our 2020 guidance that was provided on our Q1 earnings call. We expect Xtampza ER revenue in the range of $130 million to $140 million. Nucynta revenue in the range of $170 million to $180 million. Total operating expenses in the range of $120 million to $130 million, which includes stock-based compensation expense of approximately $20 million. Non-GAAP adjusted income in the range of $125 million to $135 million. And we expect to end the year with at least $180 million in cash, while repaying $37.5 million of our term notes. Midway through 2020, we've made substantial progress towards making 2020 a financially transformative year for Collegium. I will now hand the call over to Scott for a commercial update.

Thanks, Paul. In the second quarter, having adapted to the COVID-19 pandemic, we made progress against our commercial priorities of growing Xtampza ER and slowing the decline of the Nucynta franchise. Xtampza ER achieved all-time highs for total prescriptions, market share and total prescriptions per prescriber. Total prescriptions for Xtampza ER grew to 141,678, up 22% versus the second quarter of 2019 and 4% versus the first quarter of 2020. Xtampza ER extended-release oxycodone market share grew to 23.5% in the second quarter, up from 21.8% in the first quarter. The prescribing base for Xtampza ER was stable with 14,300 unique prescribers in the second quarter, and we achieved an all-time high of 10 total prescriptions per prescriber. We saw market share progression within exclusive accounts as ER oxycodone market share grew to 52% in June, up from a baseline of 40% at the end of 2019. We expect continued market share growth within exclusive accounts. And as a point of reference, Xtampza ER exited 2019 with a 63% OER market share within exclusive accounts. Nucynta franchise total prescriptions were 117,162 in the second quarter, representing a sequential decline of 2.8%, a significant improvement over the 6.1% decline in the first quarter of 2020. Nucynta ER branded ER share grew to 6.2% in the second quarter, and Nucynta ER has now had stable or growing market share for five straight quarters. COVID-19 has had an impact on our business in 2 significant ways: the decrease in live in-office visits that patients are making to their doctors and the decrease in accessibility of our sales representatives to their customers. First, regarding patient visits. As states began reopening in the second quarter, we saw in-office patient visits increase and corresponding increases in new-to-brand prescription volume. That said, as cases have begun to…

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

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

So first on Nucynta, I wanted to get your latest thoughts on what you're doing to moderate the spread between gross and net sales. You talked to some contracts rolling off that you won't renew in the past. And I'm wondering if you can comment regarding how gross to nets are going to trend later this year and really beyond this year. So that's number one. And then secondly, on Xtampza, can you talk a little more qualitatively on the extent to which the pandemic has sort of thrown a wrench into your ability to take even more share with all -- with the exclusive contracts that were onboarded at the beginning of the year? And help us understand how impactful it has been, or maybe where you'd be with Xtampza without the realities of the pandemic in terms of share.

Okay. David, this is Joe. Thanks for the questions. I'm going to share or tag team with Paul on the Nucynta question, and then Scott will take the question on the impact of the pandemic on Xtampza ER growth. So with Nucynta, it's probably early to give you granular information there in terms of what 2021 will look like. What I will emphasize is our strategy with Nucynta is essentially to try to accomplish 3 things. Where we can, we want to improve Nucynta's access, if possible, and if we can do it in a way that we feel is reasonable. The second thing that we're focused on that would have an impact to your question on gross to net is where contracts are expiring, we would love to be able to keep the product on those formularies, but in some instances, would only do so if we're able to negotiate a lower rate. And if we are in a position where we have to because of some of the contracts we inherited, we would, in fact, walk away from formulary positions if it didn't work or make sense for the franchise. And maybe Paul can speak to how to think about trending for the rest of this year.

For the rest of this year, we expect Nucynta to remain in the mid-50% range, 54%, 55% in that range for gross to net discount for the rest of this year. And I would anticipate that on our year-end call or Q3 is where through the contracting season that maybe we'd provide updated guidance on a go-forward basis at that point.

Yes. And David, thanks for the question on our growth for Xtampza and how it's kind of -- the pandemic is impacting that. So the primary driver of the impact is on patient visits. And what we're seeing is still, if you look at patient visits that kind of bottomed out in the April/May time period, while there's been a little bit of improvement, still they're down 30%, 40% versus pre-COVID time period. So that's the significant impact. And what it means is it still affects basically new-to-brand capture. Period. And what we're seeing there is also new-to-brand market volume in the OER market bottomed out in April/May. It's come back a little bit in the month of June, but still nowhere near pre-COVID levels. So we're fighting for market share. And as patients come back to the office, we'll continue to see some new-to-brand kind of rebound. And really, until patient visits are fully back, we wouldn't expect to be back to what we'd call pre-COVID capture.

And David, I would just -- I'm sorry, David. I would also just emphasize; our expectation is that Xtampza will continue to grow on a sequential basis. And the impact of the disruption in patient visits is ER to ER switching with the exception of when we have these exclusives isn't typical, and that's a very difficult thing. It doesn't seem like it would be, but that's something physicians want to do in person. And that's where we've seen the impact on the ramp, and Scott gave you some of the stats around that.

Yes. No, that's very helpful. If I may just sneak in a follow-up on Medicare Part D and contracting there. Any significant updates or any updates on progress regarding getting in better positioning overall on the Part D front for Xtampza?

Yes. So, great question, David. The way I would answer that is, right now, we're in the midst of negotiation, waiting for final decisions as we look forward to 2021, both in commercial and Medicare Part D. I would say that we're encouraged, and I would expect to be giving an update on our November call, whenever we're doing Q3 or our Q3 call. So I think that's when we'll really be able to answer the questions. But I think, look; we have demonstrated an ability to move market share when given those opportunities. The profile of the product is strong in terms of the clinical differentiation. And so we're encouraged and look forward to providing an update on our next call.

Our next question comes from the line of Gregg Gilbert with SunTrust.

Joe, when you're excluded from a formulary, should we assume that you were offered something that was not acceptable or something else? There's obviously a lot of attention paid recently in such an example. I realize every case is different. But what would you like to say about that so that people can put it into proper context?

Yes, Gregg. So look, first thing, I appreciate the question. Certainly, we take a lot of pride in trying to, as a leader in responsible pain management, remove non-clinical barriers. I think when you look at the gross to net on Xtampza, you can see that we're being reasonable with a differentiated product, but we're also not going to give the product away. And I think if you -- I believe you're referencing the change at Express Scripts that took effect July 1. And the couple of comments that I would make as it pertains to that situation is the following. Number one, that was an unprecedented decision and that no payer has ever removed Xtampza ER from their formulary. The second thing is from a business perspective, it will be modestly positive for us in 2020. And the reason for that is Xtampza was never on or was never preferred on the ESI national formulary. It was covered in a non-preferred position of which we were paying a discount for. For the past 5 quarters, to put it into perspective, Xtampza average was flat, averaged about 420 TRxs per week. And in making the decision, ESI communicated because of COVID-19, they'll be grandfathering those patients. So we do not anticipate that it will have a meaningful impact on prescriptions, but we won't be paying discounts on what we anticipate will be a relatively steady base. That being said, as a leader in responsible pain management, we're committed to continuing to work with all payers to remove non-clinical barriers. We are in active discussions with ESI. As recently as the end of June, we gave an updated clinical presentation to their clinical team, and we'll see how things evolve moving forward.

That's helpful color. On a different subject, have you made any more progress in getting removed from some of the opioid cases of which you're part, perhaps incorrectly in your view?

Yes. So look, another really good question. When you look at where it is that we're at, and this would be, I suspect, a positive, there's actually really no change. So as of today, there's over 2,600 ongoing lawsuits. We're aware as of today that Collegium Pharmaceuticals is named in 27. 8 out of the 27 are in the MDL, but none of them are track or bellwether cases. And then just for completeness, with regards to Nucynta, we don't assume any liability for promotion or sales that occurred prior to January of 2018.

Great. And my last question's on biz dev. You don't need to repeat what you've done in the past. You've been very clear about your criteria. My question is whether you've flexed that at all to include other areas that you think the company could be good at leveraging your existing infrastructure that are not as specific to the pain areas that you've highlighted in the past.

Yes. Great question, Gregg. So one, there's no change. We feel there are opportunities out there. We know what it is that we're focused on. We want to leverage the capabilities and the cost structure of the organization, and we believe there's opportunity to do that. And then the final point I would emphasize is, look, we are active, we're engaged, but we're also very confident in the in-line business, the strength of it and the growth that we anticipate moving forward. So we're also looking for value. We're not going to do a deal just to be able to say that we did.

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

First question is about the new Optum RX formulary addition announced and your, I guess a new strategy of co-preferred positioning. Can you just talk about how that will drive Xtampza growth? Is it still an ER to ER switch strategy? And should we think of this as a preliminary run to a potential exclusive positioning in the future?

So I'll start by just a reiteration of things you alluded to there, which is our overall strategy. So as we've stated in the past, when you think of our payer strategy, there's really three legs to it. We haven't changed our strategy of driving exclusive formulary wins. So that's still one of our primary strategic objectives. But we also have a strategy where we would add parity with an eye towards running into exclusive, as you just alluded to. Or for some accounts, large national ones like this, maybe a parity access for the longer duration. So we're still looking at those 3 strategic levers as we march forward. Now specific to Optum, we view this as a great opportunity midyear to get to parity. It's the first large parity position we have with OxyContin, and so we'll get a good understanding of how we can perform there and grow there. We expect growth, but as I said in my prepared remarks, it'll be protracted. It'll be a longer run-in of growth and then a clear run-in and set a good foundation for 2021 as well. So we know it won't be like an exclusive, but we're excited to see what we can accomplish here. And we'll see if it leads to other changes at Optum or if we continue to perform and grow at parity from here forward.

Okay. And then thinking of second half of 2020 growth, clearly COVID, as you mentioned, has led to a significant decrease in patient visits. Have you seen an increase of telemedicine usage from this physician base? And could that be an avenue to where we could see -- that could drive additional Xtampza growth as COVID sticks around?

Yes, Serge, this is Joe. I'll take that question. I think what we're seeing in telemedicine, and this is supported by research that others are doing across almost all categories, it generates less new-to-brand and changing of prescriptions. So we think that's a great vehicle for physicians to be able to talk to, take care of their patient. But when you get to that switch of an otherwise stable OxyContin patient and that physician then changing their medication, that's not something we're seeing happening anywhere near the rate that it does when it's the in-person visit.

Our next question comes from Brandon Folkes with Cantor Fitzgerald.

Apologies if you did mention this. I've been hopping between a few calls. But could you just elaborate in terms of the funnel of patients you're seeing post the quarter end in July? And then maybe sort of some of the positive shifts that COVID has had on your business which could be longer-term tailwinds as we emerge from COVID.

Okay. Brandon, I'm going to hand those two questions off the Scott.

Yes. So Brandon, when you talk about kind of the funnel and what we're seeing with the market. So when you talk about the funnel and kind of new-to-brand, basically what we're seeing is as COVID hit and the primary driver of the decrease was decreased patient visits, the new-to-brand market opportunity went down pretty significantly to the tune of 30% to 40% from a new-to-brand market standpoint. And that flows right through to the product, especially Xtampza as a growth product. What we've seen is that kind of bottomed out in April and May. And then in June, there's been a little bit of a growth back, nowhere near pre-COVID levels. In early July, it's in line with what we're seeing in June. So, from your standpoint of the funnel of new-to-brand, it's down since pre-COVID, but there is some rebound from kind of the heart of the COVID season. And that's what we'll be looking at as we go forward for the second half of the year.

And Brandon, one thing to just for portfolio completeness, Nucynta benefits from that dynamic as it leads to continuity of care. The other thing we saw in the second quarter is as in-person visits and procedures started to increase, not to the same degree of the IR market, but Nucynta IR benefited. Now remember with Nucynta IR, a far higher percentage is used in the treatment of chronic pain patients. So that's where, as we talk about Nucynta moving forward, that may be where there's a little bit of a tail impact when things do return to normal. So that's why we say we continue to focus on slowing the decline, even though in some instances we're seeing trends a bit stronger than that.

[Operator Instructions]. Our next question comes from the line of Dana Flanders with Guggenheim.

And Joe, I just wanted to circle back to your prior comments on the decision by Express to put Xtampza on the exclusion list. And I guess that's just surprising to me given Xtampza's abuse deterrent properties and what seems to be clear benefits over Oxy. And so I guess the question is, did Express come to a different conclusion on kind of the real-world abuse deterrence of Xtampza and its value, or was this just really around price? And maybe if you could also provide some context on kind of what you're seeing on real-world abuse deterrence of Xtampza. Any color there you could provide would be helpful.

I'm not inclined to get into the discussions that we're having with Express Scripts. I think what I can tell you is people are very aware of the clinical profile of Xtampza supported by a differentiated label, inclusive of the clinical decision makers at Express Scripts. And at the end of the day, there is a level of which we're willing to go to secure formulary positions, and sometimes there's going to be disagreements between us and a particular payer. And I would just emphasize the decision that ESI made in this moment of time is unprecedented and that it has never happened since we've brought Xtampza ER to the market. But we continue to be in discussions with them, because to the degree there's a reasonable path forward, we don't want physicians to have to, even though it's positive to our business, deal with that non-clinical barrier. And look, with regards to real-world data, what I would say is, look, we're excited about the manuscript and it being published. We're committed to continuing across the portfolio in a way that's appropriate, bring focus to the real-world data, both with Xtampza and the Nucynta franchise, and I think that the data is actually really encouraging.

Our next question comes from David Steinberg with Jefferies.

A couple of questions for Paul. When you repurchase the full rights from Assertio for Nucynta, your gross margin improved substantially, but certainly is not at the same level as Xtampza. And one of the things the company was talking about was improving those margins through changes in supply chain and other factors, tech transfer. Where is that now in the process, and when could we see some meaningful improvement in gross margin? And then secondly, for the price increase you recently took, what percent went through -- what percentage did you receive out of the -- what percent did you bring into the bottom line in terms of the did you benefit from the price increase? And then I have a follow-up.

So for trying to improve gross margin and our belief that we can bring down COGS, we spoke about that for the first time in relation to the Nucynta deal, but we have a belief that we can do that across the portfolio as well. But that's in a longer-term horizon. We're in the early stages of developing that plan. And we believe that maybe we can talk about it next year, but it's over the course of the next 3 years or so that that'll actually have a P&L impact. And as far as price increase, as you know, we took a 9.9% price increase at the beginning of the year. We realized about 5% of that.

Okay. And then on business development, I know at the beginning of the year you talked about more actively looking for assets, either on-market assets where you indicated that the barrier had to be quite high in terms of what you would bring in and then for some development stage assets. And I was just curious, given the pandemic, has there been a slowdown in activity because you can't have face-to-face meetings and that sort of thing? Or are you very knee-deep in lots of discussions with lots of companies for lots of different products? And how should we think about BD unfolding over the next 12 months?

Yes, David, this is Joe. Certainly appreciate the question. Look, we, as you articulated, we're focused in two areas: that midterm window development stage assets and opportunistically if there is a commercial stage asset where we could leverage the infrastructure. But the bar is high because of how bullish we are on the in-line business. I would say COVID-19 hasn't had an impact in terms of our engagement and activity. We know what it is that we're focused on. I think we're active and engaged, and we'll see how it progresses over the next many months.

We have reached the end of our question-and-answer session. So I'd like to pass the floor back over to Mr. Ciaffoni for any additional closing comments.

Thank you. Thank you for participating on our call this afternoon. Collegium Pharmaceutical is on track to make 2020 a transformative year. I look forward to updating you on our progress. Have a good evening. Be well.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.