Collegium Pharmaceutical, Inc. (COLL) Q3 2020 Earnings Report, Transcript and Summary

Greetings, and welcome to the Collegium Pharmaceutical, Inc. Third Quarter 2020 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Alex Dasalla, Head of Investor Relations for Collegium.

Welcome to Collegium Pharmaceutical's Third 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.

Thanks, Alex. Good afternoon, and thank you, everyone, for joining the call. I want to start by acknowledging the challenging situation the COVID-19 pandemic continues to present for so many people. Our thoughts and hearts go out to everyone who has been impacted. I'm pleased to report that our people are healthy, our supply chain is secure and our business is strong. In a year of extraordinary challenges, 2020 will be a transformative year for Collegium Pharmaceutical. We are on track to achieve our operational objectives in 2020 while concurrently setting the foundation for success in 2021. I want to take a moment to thank my colleagues at Collegium for their commitment to our mission to become the leader in responsible pain management. I appreciate the effort that they put forth every day and admire their adaptability and resolve. Business highlights from the third quarter include record net revenue of $79.2 million, which represents an 8.5% increase over the third quarter of 2019; Xtampza ER third quarter net revenue of $32.1 million, which represents a 21% increase versus the third quarter of 2019; total prescriptions were up 19% versus Q3 2019. 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. Nucynta franchise net revenue of $47.1 million, which represents a 1% increase versus the third quarter of 2019. Total prescriptions were down 10% versus Q3 2019. But it is worth noting that franchise prescriptions were stable sequentially, and that Nucynta ER TRx share has grown or been stable for 6 consecutive quarters. OpEx for the quarter was down compared to the third quarter of 2019 and sequentially. We remain committed to leveraging, not growing, Collegium's cost structure in 2020 and beyond. We were profitable on a GAAP basis for the third consecutive quarter, meaningfully increased cash on hand and paid down debt. And we settled the Teva, Xtampza ER ANDA litigation. The settlement contemplates a generic launch no earlier than September 20 -- excuse me, it's September 2033. We believe this settlement confirms the strength of the Xtampza ER patent estate. Looking forward to 2021. We believe that we have set the foundation upon which Xtampza ER will accelerate beginning in January and upon which sequential annual revenue stability will be achieved with the Nucynta franchise. Our market access team has done a great job executing our portfolio payer strategy. As it pertains to Xtampza ER, Collegium's market access team has secured additional exclusive ER oxycodone formulary wins that cover approximately 7 million commercial and Medicare Part D lives. The biggest new win is UnitedHealthcare's Medicare Part D AARP PDP preferred business, which is a highly controlled plan and the second largest plan in terms of ER oxycodone prescription. Starting January 1, 2021, Xtampza ER will be the exclusive ER oxycodone for over 92 million commercial and Part D lives. In addition, the team has secured parity formulary positions that cover approximately 5 million lives. These wins also take effect on January 1, 2021. From the perspective of managed care pull-through, our commercial team's focus in 2021 will be on 3 buckets of growth: New 2021 wins, 2020 exclusive wins and the 2020 Optum commercial parity win, which covers approximately 17 million lives. With regards to the Nucynta franchise, we improved rebates with a few plans and opted not to renew some unfavorable contracts that we inherited. We anticipate that the evolution of the payer landscape will have a positive impact on revenue, meaningfully offsetting any pressure on prescriptions. As the company committed to being the leader of responsible pain management, we will continue to work with payers whenever possible to remove nonclinical barriers to our pain portfolio, which health care providers view favorably and as highly differentiated. The Collegium team is encouraged by, but not satisfied with the progress that we have made thus far in 2020. Every person in our organization is focused on finishing 2020 strong, while simultaneously preparing for a fast start to 2021. I'm confident that we have the people and the portfolio to make it happen. I will now hand the call over to Paul for a discussion of the financials.

Thanks, Joe. Good afternoon, everyone. In the face of COVID-19, we ended the third quarter in a strong financial position. In the 2 quarters since we've closed the Nucynta transaction, we generated $78 million in cash from operations and repaid $25 million of our term loan. Our September 30 cash balance was $165.4 million compared to our June 30 cash balance of $145.7 million. Total product revenue was $79.2 million for the third quarter of 2020. Xtampza ER revenue was $32.1 million, which is an increase of 21% from the third quarter of 2019 and a decrease of 4% from the second quarter of 2020. The gross to net discount for Xtampza ER was 60.9% for the third quarter compared to 59% in the second quarter. The increase in our gross to net discount was driven by Medicare coverage gap. We continue to expect gross to net discount may be lumpy throughout the year and to be in the low 60% range for 2020. Nucynta revenue was $47.1 million for the third quarter of 2020, which is a 1% increase from the third quarter of 2019 and a 6% increase from the second quarter of this year. Operating expenses were $28.6 million for the third quarter of 2020, which is a 10% decrease from the second quarter of this year. Our GAAP net income was $11.3 million for the third quarter of 2020 compared to a GAAP net loss of $6.1 million for the prior year quarter. Our non-GAAP adjusted income was $36.1 million for the third quarter of 2020 compared to $1.7 million for the prior year quarter. Similar to the last 2 years, we expect to issue 2021 financial guidance in January. We anticipate providing guidance for adjusted EBITDA instead of non-GAAP adjusted income, like we did this year. We believe that adjusted EBITDA is a more helpful metric for investors and analysts. Please see our earnings release and 10-Q for additional information about adjusted EBITDA. In the third quarter, we had record net income, generated significant cash flow from operations, and we continued to maintain financial discipline. We are on track to make 2020 a financially transformative year for the organization, and we've built a strong foundation upon which we can continue to grow in 2021 and beyond. I will now hand the call over to Scott for a commercial update.

Thanks, Paul. As COVID-19 cases increase across the country, it continues to adversely impact in-office patient visits and in-person calls by our sales professionals. It's estimated that weekly in-office patient visits are down about 20% versus pre-COVID levels, which manifests in a corresponding decrease in the new-to-brand market. Our field force is adapting and continues to make progress. That being said, in-person calls are still down about 40%. As we've described previously, we believe the growth rate of Xtampza is adversely impacted by these dynamics, and conversely, the Nucynta franchise benefits from continuity of care. In the face of these dynamics, Xtampza ER grew modestly in the third quarter, achieving new highs in total prescriptions, market share and total prescribers. Total prescriptions for Xtampza ER grew to 142,686, up 1% versus the second quarter of 2020. Xtampza ER extended-release oxycodone market share grew to 24%, and there were 14,700 unique prescribers. The Nucynta franchise stabilized in the third quarter. And for the first time in over 3 years, the prescriber basis for both Nucynta ER and IR grew. Nucynta ER has now had stable or growing market share for 6 straight quarters. I appreciate the efforts of the commercial team, and I'm encouraged by the progress that we're making. Although we don't anticipate a return to normal in 2020, I believe that we can and will do better the remainder of the year. We're focused on improving execution and impact of both remote and in-person interactions, pulling through our strong market access positions and leveraging our new capabilities to generate momentum in the fourth quarter. Turning to 2021. Our market access team has done a great job executing our portfolio payer strategy. We put a foundation in place to accelerate Xtampza ER beginning in January and to achieve annual net revenue stability for the Nucynta franchise. I'm pleased to announce that the market access team has strengthened the formulary position of Xtampza ER, securing new exclusive and parity wins across 12 million lives. These wins will fortify the foundation for accelerated growth in 2021. In 2021, the commercial team will be focused on 3 buckets of growth. The first bucket is the new exclusive ER oxycodone wins taking effect on January 1. The most significant new win is the UnitedHealthcare Medicare Part D AARP PDP preferred business. This is a high control plan and the second largest individual plan as measured by OxyContin prescriptions. Xtampza ER is now the exclusive ER oxycodone for all of UnitedHealthcare's 10 million Medicare Part D lives. We've also secured several new exclusive wins with regional commercial plans, representing approximately 3 million lives. The second bucket is the 2020 exclusive ER oxycodone wins, which represent significant opportunity for continued growth in 2021. In both commercial and Part D, our team is focused on capturing the market share that we anticipated getting in 2020. In addition, many plans are making operational adjustments to drive better formulary adherence. The third bucket is the Optum national commercial formulary win, where Xtampza ER was moved into a parity preferred position in 2020. As a reminder, this win went into effect in July and is the first parity position for Xtampza ER, covering approximately 17 million lives. Optum commercial will serve as a bellwether and impact our contracting strategy for 2022. The team also achieved several parity wins with smaller regional plans that take effect in January and cover approximately 5 million lives. For the Nucynta franchise, the team was able to improve rebates at several plans. We also opted not to renew several contracts that were underperforming. Although these decisions will pressure Nucynta franchise prescription volume, they will result in increased revenue. As a company committed to being a leader in responsible pain management, we continue to engage payers to remove nonclinical barriers that complicate access to our pain portfolio, which health care providers view favorably and is highly differentiated. The commercial team is focused on generating portfolio momentum for the remainder of 2020, while preparing to accelerate growth with Xtampza ER and maximize the potential of the Nucynta franchise in 2021. I'm confident that the team has set the foundation to accomplish both of these objectives. With that, I'll turn it back to Joe.

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

[Operator Instructions] Our first question is coming from David Amsel (sic) [ David Amsellem ] of Piper Sandler.

And just a couple of questions. So first, on the formulary wins and particularly the United Part D. Can you talk about how we should think about the pace of new Xtampza adds or pace of switching? One thing we've seen in past years when you get a big exclusivity contract is a big bolus of volume growth in the first quarter and then moderates to some extent in the second quarter and moderate further in the second half of the year. So should we think about the dynamics next year as being similar to past years? So that's number one. And then number two, just on gross to net. Can you talk through what you think gross to nets will be for Xtampza? And I'm particularly interested in what your gross to nets will be on the Nucynta franchise given the discontinuation of certain contracts, how we should think about those dynamics for 2021.

David, this is Joe. I'm going to pass the United Part D question over to Scott, and then Paul will take the gross to net question.

Yes. Thanks, David. So yes, to answer your question first about the PDP win. We do expect acceleration right out of the gate in the first quarter, like we see every time we have an exclusive win. To give some perspective, the PDP business right now has about a 5% market share. And as a high control plan, we know that will accelerate. It will be more protracted as a PDP, right? So compared to commercial, it will be a little more protracted throughout the year but will absolutely accelerate aggressively in the first quarter.

Great. And David, so for Xtampza gross to net, as we've said, we believe we can continue to manage Xtampza in the low 60% range on a go-forward basis. But we will give guidance, and we expect to give guidance in January. So we could give more detail at that point when we're done modeling out what we think uptake will be next year. On the -- for the Nucynta franchise, it's been fairly stable in the low 50% range now. And so that could certainly -- we could see some benefits in gross to net as we change these payer contracts. So that's something that will also be included in our work done for coming out with 2021 guidance and our communications with that.

Okay. And then if I may just ask a follow-up. This is for Joe. You talked about biz dev in the past. I wanted to get your latest thoughts. And you talk about the addition of an asset that has some line of sight into commercialization down the road, obviously, looking at keeping an eye on the loss of exclusivity on Nucynta in a few years. So just with all that in mind, what are your latest thoughts? And what are you prioritizing these days?

Yes, David. Thank you, and I appreciate the question. As always, when I get that question, I'd like to emphasize the confidence that we have in the runway of the core business and how it is that we anticipate that it will perform. In terms of our focus, our focus remains the same. Our highest priority is looking at late-stage development in non-opioid pain solutions. I would say we're focused, we know what it is that we prioritize, and we're active from that perspective. And then I guess the final point that, I think, is always important for us to emphasize is because of the strength of the overall business, we're also really locked into value and making sure that not just in terms of value of the asset in terms of being a meaningful solution, but also being able to action around it in a way that we think makes sense for the organization and the utilization of our capital.

Our next question is coming from Tim Lugo of William Blair.

This is Lachlan on for Tim. So I was just interested, can you give a sense of sort of what your penetration into current plans is? And as you think about your sort of future growth sort of 2021 and beyond, how that's going to be driven by increasing penetration versus continued expansion of coverage and formulary, lives on the formulary?

Yes. Thanks for the question, Lachlan. So yes. So with the wins we just announced, in commercial, about 45% of lives will be in an exclusive position and about 42% of Part D lives. So strong penetration. But obviously, if we need to pull that lever more, there's still more room to grow from a standpoint of exclusivity. The parity wins are big. That's 22 million addition lives will be in parity with Optum in some of these regional plans.

Our next question is coming from Greg Fraser of Truist Securities.

It's Greg Fraser on for Greg Gilbert. On the recent Part D, the United Part D plan, can you give us a sense of the volume of that plan in terms of oxy prescriptions? You mentioned 5% market share. I wasn't sure if that referred to the volume or the size of that plan.

Yes. So Greg, this is Joe. On United Part D, what I would say right now, we're really confirming the final numbers as we work through our forecast for 2021. And as you know, there's ins and outs of lives. What I can tell you with confidence is it's the second biggest individual payer of extended-release oxycodone. OxyContin, obviously, in this case, is what is most important. And as Scott referenced and it speaks to the level of control at United PDP, we currently have a 5% market share, which is why we expect to see significant growth right out of the gate in 2021.

And that's the second largest payer for Part D or overall oxy?

That's the second largest individual payer of OxyContin.

Got it. Okay. And then just curious what you see as the potential implications on the oxy ER market or potential opportunities for you due to the new ownership structure of Purdue and what that company is going through?

Yes. So look, I'll take that one. And as you might imagine, we're -- I don't want to speculate or get into the potential outcomes or impact of what it is that one of our competitors is going through. What I would say is from a Collegium perspective, we feel really good that our pain portfolio is viewed as highly differentiated and favorable by pain specialists. We are really excited about the foundation that we continue to put into place to accelerate Xtampza to continue to be able to stabilize from an annual revenue basis the Nucynta franchise. So we're focused on Collegium, executing around our strategy, feel there's a long runway of growth. And we're committed to we believe we're on track for Xtampza to be the #1 branded ER product by 2023.

Our next question is coming from Serge Belanger of Needham & Company.

A couple of questions for me. First, can you talk about the current business and growth environment for both Xtampza and Nucynta? And has there been any improvement throughout the third quarter? I think in the past earnings update, you talked about the slowing down in new patient starts mostly due to a reduction in patient visits. How do you think about that ahead of another [indiscernible] opportunity starting in January?

Serge, this is Joe. I'm going to apologize. We couldn't hear your question. You were breaking up. So I'm going to ask you to repeat it. We -- on our end, we just couldn't hear you.

Got it. Can you hear me now?

It's still in and out. You're still breaking up.

Is this better?

No.

No, worse.

Our next question is coming from David Steinberg of Jefferies.

I have a couple of questions. The first is, this year, the ramp of the scripts has been slower than most people thought, largely attributed to the fact that there's just been a lot of -- less in-person visits to the doctor in order to get the handover from OxyContin to Xtampza script-wise. And I was just curious, in the third quarter, has there been any improvement in the number of direct meetings between patient and physician in order to facilitate that? Or is it still pretty sluggish given the pandemic? And then secondly, you touched on business development. I was just curious, we're getting different messages from different companies. Some companies say they've paused business development because they can't have face-to-face meetings during the pandemic or the valuations have gotten too expensive. Just curious, are you still active? Or has your activity declined a bit because of the pandemic and the related issues thereof? And what are you seeing in terms of valuations of companies you're interested in?

Okay. David, this is Joe. I'm going to pass the first question off to Scott, and then I'll come back and talk about business development.

Yes. Thanks, David. Look, when we look at patient visits, really what we're seeing is still they're down over 20% since pre-COVID time period. And with cases rising across the country, we don't really see any improvement in that, and we're not counting on that for the rest of the year.

And then, David, from a business development perspective, what I would say is we're focused, we're active. I think the key for us because of the strength of the overall business is we're going to be selective, both in the belief in the program, the differentiation of it and also what it is that we're looking to do from a value perspective. So I would say active but selective.

Our next question is coming from Brandon Folkes of Cantor Fitzgerald.

Congratulations on the win. Joe, in the past, you've talked about prescription growth in the second half of the year being a focus and somewhere where you want to sort of improve, right? You did mention and Scott gave some color, obviously, things remain challenging in terms of getting the patient -- I mean, in person, salesperson visits and patient visits. But how do you think about this going forward? And is this something that parity contract could help with and you're looking at that to maybe drive growth, not just that bolus we get in the beginning of the year, but also in the second half of the year, in terms of around Xtampza? Any color you can provide there would be great.

Yes. Brandon, so thanks for the question. I appreciate it. The first thing is with regards to exclusive plans and as we look to 2021. I think, one, we're excited about the new plans that will be taking effect on January 1 and look at those as a source of acceleration and with a trajectory kind of in line to what we have seen when we've implemented exclusive plan. The second pool or bucket of growth that I really want to emphasize is the opportunity for the plans that took effect on January 1 in 2020. And you may recall in previous calls, we talked about at the beginning of the year when you added all of those new plans in, our market share in exclusive plans went from 60% down to about 40%. Right now, we're in the low, approaching the mid-50%. So the difference of that 60% and the mid-50s of where we would expect to end this year, we think, is the opportunity to capture share than we would have anticipated capturing this year. When you look at the parity wins, in particular, Optum, which is the biggest, but overall, we have 22 million lives, we think that, that will have a different trajectory and will continue to be something that improves each month as time goes on and will be a different curve than the exclusive. So to the degree, when there's a return to normal, in terms of in-person business and the ability of our sales professionals to see physicians in person, I think that will be a more consistent and steady growth, which certainly we would anticipate having positive impact to the second half of the year.

[Operator Instructions] Our next question is coming from Kevin Kedra of G. Research.

Joe, you mentioned that 60% level for the exclusive plans. Just wondering on the parity plans, what sort of level of share within those plans would you need to get sort of on the same level from an economic standpoint as what you're getting on exclusives? I mean, obviously, I would imagine that you need less penetration on a parity plan, given favorable pricing. But can you give us any sort of color around where that would have to come out to kind of be on par with the economics you would get with an exclusive plan?

Yes. So Kevin, I appreciate the question. For a multitude of reasons, I'm probably not going to give you a specific answer. But what I would say to you is, it is correct. Because it is better margin, we would need to achieve a much lower market share from an economics perspective.

Okay. Even if it's -- with the time lines, do you think within 2 years on a parity plan, could you start getting to an economic level where you anticipate being after the first year on an exclusive plan?

Kevin, I'm not going to get into too much detail. One thing I'd ask you to keep in mind with the parity approach, this is the -- Optum is the first one that we've had. The reason we referenced it as a bellwether is, although we have hypotheses, we model what it is we think it will be, we -- we actually need to see it, and we need to see it in a world when it returns to normal, meaning, post COVID. So that plan, in particular, with the parity positions overall will really help us understand what it is we can achieve in this space in that position. And it certainly will have impact as we think about contracting on a going-forward basis, depending upon what it is that we see.

Great. That's helpful. And then I wanted to ask about -- you mentioned going forward in 2021, you're going to give adjusted EBITDA as opposed to net income outlook. Just wondering kind of rationale behind it. Is it in any way a function kind of the volatility you might see in tax rate as you utilize NOLs? And kind of how should we think about NOL utilization in 2021?

Yes. It's a great question, Kevin. So for us, the main reason to do it is it's a more comparable metric for investors and analysts to use to compare Collegium to other companies that they follow. So that's the reason we're doing it. As far as our tax rate and things going forward, for 2020 and 2021, we should only -- we shouldn't pay any federal income tax. We think our NOLs shield us on the federal side. We'll have a minimal amount of state exposure, though, in that time frame. As you're probably aware, some states have changed the use of NOLs and -- because of the pandemic and their budget issues. So we'll pay a couple of percent in state taxes over the next year or 2. And then we'll become a full taxpayer probably in the 2023 time period.

Okay. And if I could squeeze one last one in. You guys have recently published some real-world data on Xtampza and kind of misuse and abuse. There was a time when the FDA was kind of really pushing the idea that, that kind of data could eventually find its way onto a product label. Is there still an opportunity or a pathway there with the FDA to eventually put some real-world abuse data on the label? Or are we kind of past that point?

Yes. So Kevin, this is Joe. I would say, look, the data that we continue to see we're encouraged by. We certainly share it and make sure the agency is aware of it. And along those lines, we also have some close marketing regulatory requirements that we need to fulfill. And I'll leave it there.

At this time, I would like to turn the floor back over to Mr. Ciaffoni for closing comments.

Thank you. Thank you, everyone, for participating in our call this afternoon. Collegium Pharmaceutical is on track to make 2020 a transformative year. And we look forward to updating you on our progress. Have a great evening. Be well.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines and log off the webcast at this time, and have a wonderful day.