Greetings, and welcome to Collegium Pharmaceutical Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Julie Fallon. Thank you. You may begin.

Welcome to Collegium Pharmaceuticals third quarter 2021 earnings conference call. This is Julie Fallon on behalf of Collegium. I'm joined today by Joe Ciaffoni, our Chief Executive Officer; Colleen Tupper, 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 risk 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 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, Julie. Good afternoon, and thank you, everyone, for joining the call. Today, we will discuss our performance in Q3 and through the first nine months of the year, in addition to our near-term outlook. At Collegium, we remain focused on our mission of being the leader in responsible pain management, and we are committed to driving growth in our business and creating value for shareholders. We will do this by maximizing the potential of our differentiated portfolio of pain products, achieving our operational and financial goals, deploying our balance sheet and strategically investing in our long-term growth. In the face of challenging market dynamics throughout 2021, inclusive of the third quarter, we are making progress against our full year operational objectives, and are on track to achieve record total revenue, net income and adjusted EBITDA. As we have consistently emphasized throughout the year, COVID-19 dynamics have adversely impacted the mix of Xtampza ER prescriptions, pressuring gross to net beyond plan and negatively impacting Xtampza ER revenue. This dynamic continued in the third quarter. Conversely, the Nucynta franchise has benefited from continuity of care and gross to net favorability. We expect to deliver total revenues of $330 million to $340 million in 2021, achieved differently than initially anticipated. Total revenue, operating expenses and adjusted EBITDA continue to track to the overall expectations that we communicated in January. Colleen will share our updated 2021 guidance. We believe that we are embarking on a phase of growth and value creation for the organization, and I remain confident in the underlying strength of our differentiated pain portfolio and the opportunities we have ahead to meet our operational and financial objectives, and to deliver value for our shareholders in the near and long-term. Notable accomplishments in the first nine months of 2021 include,…

Thanks, Joe. Good afternoon, everyone. Q3 was a solid quarter, and we remain in a strong financial position. We leveraged our operating cost structure, paid down debt and returned capital to shareholders through the share repurchase program authorized by the Board in August. Since the program's inception, we have been active buyers of the company's stock which reflects our belief in the long-term strength of the company and the attractive valuations we are currently seeing in the market. Before I run through the financials, I do want to remind you that I will be referencing GAAP and non-GAAP financial measures during my remarks, and would refer you to our press release issued earlier today for a full reconciliation of GAAP to non-GAAP results. Total product revenue was $78.8 million for the third quarter, flat relative to the third quarter of 2020. Xtampza ER net revenue was $30 million for the third quarter, a decrease of 7% from the third quarter of 2020. Gross to net discount was 73% in the quarter as the mix of business skewed further than expected to exclusive accounts and Medicare in particular. This dynamic highlights the importance of our commitment to managing gross to net going forward and is the basis for our positive outlook for the business. We are both laser-focused on and have significant opportunity to optimize the rebating structure for Xtampza in 2022 with the impact of that opportunity manifesting in 2023 and beyond. We will manage gross to net discount to less than 65% beginning in 2023. The Nucynta franchise continues to benefit from the execution of our payer strategy and the continuity of care associated with COVID dynamics. The gross to net discount was 46% in the quarter versus 53% at the end of last fiscal year, once again better…

Thanks, Colleen. In Q3, we continued to make progress on our goals for the portfolio, growing market share with Xtampza ER and maintaining market share with Nucynta. We faced more challenging market dynamics than anticipated, which impacted the performance of the portfolio in the quarter. In-office patient visits in pain specialty were down approximately 30% from pre-COVID levels, leading to a negative impact on the new-to-brand market, which remains down over 25% compared to pre-pandemic levels and was down 10% sequentially versus the second quarter. We believe these dynamics have had an adverse impact on the growth rate of Xtampza ER and conversely have benefited the Nucynta franchise due to continuity of care. While I'm not satisfied with Xtampza ER's growth in the third quarter, I am encouraged that Xtampza ER achieved all-time highs for total prescriptions, total prescribers and market share in the third quarter. There were 19,200 prescribers in the quarter, and Xtampza ER exited Q3 with a 32.5 share of the ER oxycodone market, up one percentage point from the end of the second quarter. The year-to-date market share gain of 7.4 percentage points is the largest we have ever achieved for Xtampza ER in the first nine months of the year since launch. Xtampza ER growth continued to skew toward exclusive accounts and in particular, Medicare Part D. We believe negative market dynamics associated primarily with COVID-19 adversely impacted growth in the non-exclusive books of business. For the remainder of the year, we're focused on strengthening our commercial execution and leveraging new marketing and sales resources to grow Xtampza ER market share within the non-exclusive books of business. Nucynta franchise market share was stable in the third quarter at 6% and the prescriber base was stable at 11,500 prescribers. Our payer strategy has resulted in significant…

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

Our first question comes from David Amsellem with Piper Sandler. Please proceed with your question.

Hey, thanks. So just a couple of questions. So on Xtampza, so I just wanted to drill down on what you're trying to accomplish. I guess, my bias would be that once you have a certain rebate, it's hard to go back and get a lower rebate from the same payer. So, is it fair to assume that you're going to be doing something similar to what you did with Nucynta, which is just walk away from suboptimal contracts? Is ultimately getting to that 65% is going to be largely a function of walking away from those contracts, sacrificing some volumes, but ultimately getting the better overall blended economics. So is that one way to think about it? And then I have a few follow-ups.

Okay. David, this is Joe. I'll start and maybe Scott could add some color. First off, I would think of Xtampza different than Nucynta based on where it's at in its life cycle. As you know, we have a long runway with Xtampza that goes out until 2033. The second thing to be mindful of is the clinical story of Xtampza and the differentiation of the abuse-deterrent technology along with the impressive and evolving body of real-world data. The third thing is as we're talking with plans, they understand what it is they're able to accomplish by adding Xtampza ER to their formularies. And I would be mindful that in these exclusive plans, we have exceptionally high market shares. The final comment I would make, and I really would not underestimate the importance of the first opportunity we had to renegotiate an exclusive contract, in that we were able to materially roll back the discount while maintaining Xtampza's formulary position. So as we outlined during our prepared remarks, we have a huge bolus of Xtampza prescriptions up for renegotiation over the next two years. And we believe and we're setting out to roll the discount rates back based on the clinical value that has been demonstrated in the value to the plan while maintaining Xtampza in a preferred formulary position.

Okay. That's helpful. And one of my follow-ups is on that renegotiation that had a successful outcome. Can you talk to -- and I realize this might be more than you're willing to go into. But if you can talk to what were the drivers of being able to get that rebate down? And in particular, was there anything you make about that particular plan that drove this particular result?

Yes. Thanks, David. It's Scott. So I think, I wouldn't frame it as unique. I'd reinforce some of the things Joe just said. The situation was a plan that was committed to the clinical differentiation of Xtampza saw the success that was driven clinically over the last few years, saw the reemerging real-world evidence that backs up the differentiated label when they signed the deal and now a share, that was very high for Xtampza, and now share where they were all in. And so us being able to work with them with what let us be able to drive the rebate down, while maintaining exclusivity. And I'd say that's a story that will be something we will continue with the other ones that are emerging to be renegotiated.

And David, the only thing I would add, and this is probably a good reminder for everybody. When we started out on our strategy with Xtampza ER, one of the things that was important for us for any plan that made a decision to add Xtampza was their belief in the clinical value and in particular, the differentiated abuse-deterrent technology. As you know, the vast majority of these plans had press released the clinical basis of their decision. And certainly, the product has performed within those plans in a manner in which they would have expected in terms of the share we achieved and as I said, the evolving data that they're able to see supplemented by the real-world performance of Xtampza ER.

Okay. That's helpful. And then last question is just on capital deployment and on biz dev. It's obvious that competition for assets can be intense. Joe, I wanted to get your thoughts on, if you don't find something that's optimal, would you lean more into share buybacks or even consider a dividend? In other words, in the absence of maybe talk through those other options?

Yes. So it's a great question, David. The first thing I would emphasize is we are committed to creating value for our shareholders. We believe it's and, and not and/or proposition as it pertains to BD. In other ways, the way we're choosing to do it now is through the share repurchase program. And we believe we can do both of those. I would emphasize that the current valuations, we feel very strongly there is a disconnect in our stock price, and we will continue to be as we have been active in repurchasing our shares at this level -- at the current share prices, which is a way in which, obviously, we're returning value to our shareholders. From a BD perspective, what I would say is we are highly active. We know in two of the buckets what it is that we want and what it is we're willing to pay, and those two are the commercial stage high synergy and in the non-opioid pain solution development stage, and that is a limited set of options to be very candid. Commercial stage low synergy is a bigger group of options that we're actively pursuing. What I would say is we are confident that we will get the right deal done for Collegium in the near-term.

All right. Thanks, Joe.

You got it. Thank you.

Our next question is from David Steinberg with Jefferies. Please proceed with your question.

Thanks, and good afternoon. I have a couple of Xtampza questions. So the story keeps changing a bit and slipping, I'm just trying to try to understand what's going on here. So the last three quarters have actually been a decline sequentially in Xtampza. And you said that by 2023, you hope to get your gross to nets down to 65%. So given what's happened recently and given what you said about 2023, are you implying that in 2022 that Xtampza best case will be flat or possibly shrink? And then second, I'm trying to understand what's happened with your guidance, because you gave the most recent set of estimates in the first week in August. So the quarter was almost halfway through. In the previous quarter, you reduced your Xtampza estimates pretty considerably. Given that you're already halfway to the quarter, what happened in the second half of the quarter? And why weren't you more conservative given what happened in the prior quarter too, because once again, you're cutting your Xtampza estimate. So it's a bit of a head scratcher to me. I'm trying to understand it. And if you could explain it, that would be great?

Sure. So David, this is Joe, and I appreciate the questions. I'll start off with your first question and then hand guidance off to Colleen. Look, with regards to what we believe has been happening with Xtampza in 2022, it has been a consistent impact, we believe, of COVID-19, impacting first off the overall market, and then impacting Xtampza from the perspective of where it is that we're sourcing business from, which as we've said throughout the year is skewing to exclusive and with an exclusive Medicare Part D which is our lowest margin business. That's pressuring gross to net, which is adversely impacting Xtampza net revenue. As you know, with the Delta variant where we were anticipating there to be improvement in terms of the impact of COVID. As Scott outlined in the third quarter, in particular, the final two months, we saw pressure and a 10% sequential reduction in the NBRx market. Now to your question, when you think about Xtampza moving forward, and we'll be giving guidance as we always do in January, we believe, number one, that the brand will grow prescriptions on a going-forward basis through the new exclusive position we added our existing exclusive, and we have an unscratched opportunity. We haven't scratched the surface and our parity plans to this point in time, and we believe we'll have the opportunity to do that in 2022. In addition, and I would encourage you not to lose sight of what we communicated on the Part D plan that we were able to renegotiate, that will contribute on a revenue basis right out of the gate in 2022. So we anticipate strong revenue growth with Xtampza in 2022. And with opportunity that we outlined to further improve gross to net, and we will absolutely be under 65% in 2023 and beyond. And I'll hand the guidance question off to Colleen.

Hi, David, this is Colleen. I appreciate the question in relation to the change in guidance. In early August, when we guided for the remainder of the year, we expected the COVID dynamics to slightly improve or at least stabilized. And what in fact happened in the third quarter is that it worsened and that resulted in the higher gross to net from Xtampza and that was just not what we were expecting.

Got it. Okay. And just a follow-up, so just reading between the lines, Joe, you're saying the prescriptions are going to grow next year. You have this Part D plan hitting the first quarter revenue situation pretty hard. So are you basically saying that you expect revenues to grow next year? Or are you not sure? And then secondly, on BD, in response to David's question, I think you said something about near-term. So should we -- I know you've been looking at assets for a long time, and obviously, you don't want to overpay and you want to buy the right company or right asset at the right price. But when you say near-term, should we be thinking that something is going to happen in the next six months or so?

Yes. So David, what I would say, and we'll give guidance for 2022 in January, my expectation is that we are growing both prescriptions and revenue in 2022. From a BD perspective, I would say we're active. We are looking to do the right deal. We know and are pursuing things that we think are desirable. I would love to be able to announce a deal tomorrow. I think it is a reasonable expectation that by the end of 2022, I would expect us to have a deal completed.

Okay, that's fair. Thanks for the clarification.

You got it. Thank you.

Our next question is from Serge Belanger with Needham & Company. Please proceed with your question.

Hi, good afternoon. A couple of questions for me on Xtampza. First, on the business environment, I think Scott mentioned that the environment kind of deteriorated over the third quarter relative to the second quarter. Curious to see what you have seen since then? And then looking toward 2022, do you expect that environment to improve? Or it will remain kind of depressed by 30% for the most of 2022.

Yes. Thanks, Serge. So first, what I'd say in terms of the third quarter, that's what got us, right? It was the additional 10% decrease in the new-to-brand market. And right now, that's where it is through the latest weekly that we're seeing. As we move into the beginning of next year, we'll be watching just for a rebound of that new-to-brand market essentially.

Hey, Serge, this is Joe. Here's the way I would frame it. It's interesting this year. If you look at the total opioid market, and when I say that I'm combining IR and ER, it's down about 2%, which is actually better than what we would have forecasted the market to be. The IR market is down only 1.4%. Now the reason that that's important to understand is what fuels and you know this, the ER market in the dynamic portion of it, 85% of it is driven by patients on an IR converting to an ER. And for that to happen, we believe those in-person patient visits need to occur. So that's the continuity of care. The opioid market overall is actually performing better than we had predicted in our models. The patients are just staying on the therapies that they're on. So we would expect to see improvement, obviously, as COVID conditions improve, but we also expect out of the gate in 2022 to both be growing prescriptions and revenue.

Okay. And I guess one more for Scott. Can you just again run through some of the new formulary additions that you're expecting for 2022? And Are these the only ones we're expecting now? Or do you expect more to be added throughout the year?

Yes. Thanks, Serge. So we added three million lives, which then takes us to 100 million exclusive lives. And then I want to reinforce what Joe had mentioned, the 40 million parity lives we have, where we haven't scratched the surface. We're low in market share and we have a tremendous opportunity to grow. That's the focus on the platform for growth. And by all means, we're always fill in discussions, and we're sitting here in the first week of November, but there could be other wins that we get as we end the year. And so we'll keep executing around those opportunities. But for now, it's three million new for a total of 100 million exclusive.

Got it. Thank you.

Our next question comes from Oren Livnat with H.C. Wainwright. Please proceed with your question.

Okay. I have a couple of questions. Thanks. I think I'll ask kind of a cynical one about the negotiations to sort of follow on to Dave, both Dave. The what's really...

Oren, I'm sorry, you're breaking up. We can't hear you.

Oh, I’m sorry. Can you hear me right now?

Yes.

Okay. Just moving the phone. When it comes to kind of renegotiate, what's really the main driver of leverage in that conversation? You've spoken about this one payer, recognizing the clinical value and the real data. And clearly, they were early adopters and onboard from the start. But with some of the bigger players, is it really a function of your market share that you have in those exclusive plans that gives you the leverage in that conversation such that if you are willing to walk away or you do walk away, are they going to be stuck with some material amount of sticky business that they've been paying full price? So it's really just a dollar-and-cents question for them? Or if -- can they push back? And if the answer is no, are you then theoretically actually block from all of that volume versus business being sticky? And then I have another question.

Yes. So Oren, this is Joe. I'll take that one, maybe. So look, I think we approach any negotiation with humility. And I think it's the totality of the clinical, the market share that we have. And remember, these plans where we're exclusive on the basis of the clinical believe transitioned, the vast majority of their patients off of OxyContin in the relatively recent past over to Xtampza. So we think that's just an important thing to be mindful of. And like I said, it's not this one plan. I would emphasize, it is the first time that we have had the opportunity to renegotiate with an exclusive plan, and we're able to achieve the outcome that we thought we would be able to.

Okay. And I guess just more specifically in general, within whether it's Medicare or elsewhere, did you walk away because you can't come to an agreement? Does that -- I guess, is there some meaningful portion of uncontrolled lives less nowadays in the industry such that there is a sticky amount of business at high value? Or is walking away really walking away from those lives?

Yes. So our intent Oren, is not to walk away. We want patients and physicians to have access to our portfolio. What I would say to you is in a situation where it is that you -- if you were to walk away which is not our intent. No product and no plan goes down to zero. So if you look, for example, what you see happening with Nucynta, where we were in a position where we walked from a couple of payers, you could see that the gross to net improvement far offset any pressure to prescription.

Right. Good example. And then just separately, obviously, you've been highlighting for a while market willing that the parity position is sort of a blue sky opportunity for you. And obviously, COVID has made pulling through those plans very difficult to-date. But it's not that there's no patient visits in the last year and half of COVID. So I'm just curious, what have you learned so far since you've gotten these positions about how they can perform? Are there any examples where you said, look, when we did X, Y and Z in certain territories with parity position, we grew share ex amount and if NBRx visits or volume and visits was higher, here's the potential?

Yes. So Oren, I'll start and maybe Scott could add on this. The honest answer to that question is we actually do not know what can be accomplished in a parity position which is one of the biggest disappointments of the past year and half or so, because it impacts how it is we think about contracting on a going-forward basis. So as you heard in Scott's comments, we're choosing to be very selective right now in terms of new additions, because we don't have the answer to the question of what we can accomplish in that parity position. What we know is if the patient isn't going in to see the physician minus the push of the payer, we're not seeing market share anywhere near the level that we had anticipated. And you are correct. It's not that we're not growing in parity because we are. We're also growing where we're non-contracted. We are just not growing anywhere near the rate we would have anticipated, which is driving the dynamic of the gross to net pressure because we're getting a far higher proportion of our business from exclusive than we anticipated. Now I'll close this out by saying we love the market position. All right. We've grown -- added more market share to Xtampza this year than in any year other than the first year of launch, and that gives us a position to leverage as we go forward.

Okay. I appreciate it. Thanks.

You got it. Thank you.

Our next question comes from Tim Lugo with William Blair. Please proceed with your question.

Hi. This is John on for Tim. Thanks so much for taking our questions. Just wanted to say congrats on continuing to managing your operating expenses due to pandemic. I'm just wondering with all the newly realized savings, how much of that may be permanent from structural changes, and how you're thinking about your goals where you think?

Hey, John, this is Joe. You faded out. Can you repeat your question? And I know it was on OpEx, so Colleen will take it. But you faded out right away.

Sorry about that. All right. Can you hear me now?

Yes.

Okay. Sorry. Just wondering where you think that your operating expenses may eventually even out? And how much of it might be permanent from structural changes on the pandemic?

Thanks for the question, John. This is Colleen. Good to hear from you. So I think we're at a position where we are very rightsized. We will continue to leverage our operating structure and not grow it. So you will see reasonably similar operating expense levels going forward.

Okay. Great. Thank you so much.

You’re welcome.

Our next question is from Greg Fraser with Truist Securities. Please proceed with your question.

Hey guys, thanks for taking the questions. I'm sorry if I missed this, but did you say what the gross-to-net for Xtampza was in the quarter?

Hi, Greg, this is Colleen. Yes, I did, it was 73%.

Got it. And then I just want to follow up on the plan to renegotiate contracts. I know you're limited by when the contracts come up for renewal. You had the recent successful renegotiation. Do you need to have similar success with the contracts that come up for renewal next year to get to your gross-to-net target for 2023? Or, do you just need success with a portion of the plans? Any color on that would be helpful. Thanks.

Yes. Thanks, Greg. So what I'd anchor to is, we need to have some success, and we have unbelievable opportunity. So the deal is despite what we already accomplished, which starts in '22, still 80% of prescriptions are up for renewal, 50% in '22 and 30% in '23. So of course, we need some success to bring that gross to net down, but we have a tremendous amount of opportunity, and that's why we are committed to be below 65% beginning in 2023.

Hey, Greg, this is Joe. I would give you a perspective. We're trying to achieve a balance of maintaining our formulary position while improving the discount rate. If we were to lose, if you define losing as we didn't get the discount rate that we wanted, that would materially help in getting gross to net under 65%. And certainly, in the immediate couple of years have a significant impact on revenue. So that's not the outcome that we're shooting for. The reason I give you that texture is because at the end of the day, we're committed, one, to giving patients and physicians every opportunity to access our products to working with the payers in a reasonable way based on the clinical profile of Xtampza, the impact it's having in the real-world and trying to achieve that balance. But the long story short there is, it is a controllable from a Collegium perspective, and we will be less than 65% in 2023.

Got it. Thank you.

You got it.

There are no further questions. At this time, I'd like to turn the call back over to Joe Ciaffoni, for closing comments.

Great. I want to recognize my colleagues for their hard work and them for their dedication to people living with pain and the communities we serve. Collegium is financially strong, and our pain portfolio is positioned for success in 2022. I'm confident in our ability to create value for our shareholders and reiterate our commitment to effectively deploy our balance sheet near-term and strategically invest in our long-term growth. I look forward to updating you on our progress. Have a great evening.

This concludes today’s conference. You may disconnect your lines at this time. And we thank you for your participation.