Greetings, and welcome to Collegium Pharmaceuticals Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note that this conference call is being recorded. I will now turn the call over to Christopher James, Vice President of Investor Relations at Collegium. Thank you. You may begin.

Welcome to Collegium Pharmaceuticals third quarter 2023 earnings conference call. 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 then 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 our products, that we may incur significant expense and that we may not prevail in current or future litigation pertaining to our business. 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 our CEO, Joe Ciaffoni.

Thank you, Chris. Good afternoon, and thank you everyone for joining the call. Today we will discuss our progress on delivering a banner year including our financial performance in the third quarter, provide an update on the payer landscape for Xtampza ER and Belbuca and discuss the Nucynta regulatory extension. We'll also share our expectations for the remainder of the year and our outlook for 2024 and beyond. As we build a leading diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions, we strive to do good as we do well. During the third quarter, we held our second Annual Day of Service. At our corporate headquarters we partnered with science from scientists to build STEM kits for some of the 12,500 students they serve, while our colleagues across the country volunteered at organizations that make a positive difference in their local communities. I'd like to recognize the Collegium team for their commitment to healthier people, stronger communities. I am pleased to report that 2023 will be a banner year for Collegium Pharmaceutical. Based on our performance in the third quarter, we are confident that we will deliver on our financial commitments and make meaningful progress on our capital deployment priorities. Key accomplishments in the third quarter of 2023 include we delivered solid financial results including record quarterly Belbuca revenue and record quarterly adjusted EBITDA. In the third quarter of this year we grew revenue 8% and grew adjusted EBITDA at 2.5x that rate at 19% compared to the third quarter of 2022. We completed the renegotiation of contracts representing 30% of all Xtampza ER prescriptions. Xtampza ER will maintain its current formulary position and accounts representing 57% of the opportunity at an overall lower rebate level, and plans were Xtampza ER will…

Thanks, Joe. Good afternoon, everyone. We are confident we will achieve our financial objectives for 2023. In the third quarter, we grew revenue 8% year-over-year, while adjusted EBITDA grew at 2.5x that rate. As expected, we sequentially reduced operating expenses and generated positive operating cash flows, while paying down $45.8 million in debt and executing an accelerated share repurchase program, which returned $50 million in capital to shareholders at its completion on October 31st. Financial highlights for the third quarter include net product revenues were $136.7 million in the third quarter, up 8% year-over-year. As expected, revenue in the third quarter reflects higher coverage GAAP expense also known as the donut hole in Medicare coverage. As is typical, we expect revenue in the fourth quarter to be sequentially higher than the third quarter. Belbuca net revenue was a record $45.4 million, up 17% year-over-year. Xtampza ER revenue was $39.8 million, up 2% year-over-year and Xtampza ER gross-to-net was 64.6% in the third quarter. The prior year comparative for Xtampza ER is challenging given we had a favorable returns adjustment of approximately $8.1 million in the third quarter of 2022. We expect full-year Xtampza ER gross-to-net to be between 60% to 62% in 2023, 100 basis points lower than our previous range. Nucynta franchise net revenue was $47.5 million, up 7% year-over-year. GAAP operating expenses were $35.3 million, down 8% year-over-year and adjusted operating expenses were $28.3 million, down 13% year-over-year. Net income for the third quarter was $20.6 million compared to $0.5 million in the prior year period. Non-GAAP adjusted EBITDA was $89.4 million, up 19% year-over-year. GAAP earnings per share was $0.61 basic and $0.53 diluted in the third quarter, compared to GAAP earnings per share of $0.01 basic and diluted in the prior year period. Non-GAAP adjusted earnings…

Thanks, Colleen. At Collegium, we're proud to be the leader in responsible PAIN management. Belbuca, Xtampza ER, and Nucynta ER have a combined 50% share of the branded ER market. In recent market research, 70% of HCPs indicated that they intend to prescribe more Belbuca and Xtampza ER. 30% intend to maintain their prescribing and none intend to decrease their prescribing. In the same research, 80% rated the quality of their interactions with Collegium sales professionals highly. Our PAIN portfolio is highly differentiated and our commercial organization is engaged and committed to improving the lives of people living with serious medical conditions. In the third quarter, Belbuca total prescriptions grew 1.2% year-over-year and 1.4% versus the second quarter of 2023. We anticipate Belbuca prescriptions will grow on a full-year basis in 2023. While Xtampza ER revenue was up 24.5% year-to-date, prescriptions have declined, which is disappointing. Total prescriptions were stable in the third quarter, a continuation of what we saw in the second quarter, averaging around 12,000 prescriptions on a weekly basis. For the remainder of the year, we'll be working on generating momentum for Xtampza ER and taking actions to mitigate any pressure on prescriptions in 2024. Importantly, the Nucynta Franchise continues to be a relatively stable contributor and revenue grew 7% versus the same quarter in 2022. I'm excited to report that we've successfully completed the contract renegotiations with plans that that account for approximately 30% of all Xtampza ER prescriptions. This was a top commercial priority in 2023 and will serve as a catalyst of revenue growth in 2024. Now, let me take a moment to highlight the results of the Xtampza ER contract renegotiations. In plans that represent approximately 57% of this opportunity, Xtampza ER will maintain its current formulary position at a lower overall rebate.…

Thanks, Scott. We are on track to deliver a banner year in 2023. For the remainder of the year, we are focused on achieving our financial objectives and preparing for success in 2024. We are committed to creating long-term value for our shareholders by taking a disciplined approach to capital deployment. I will now open the call up for questions. Operator?

Thank you. We will now be conducting a question-and-answer session. [Operator instructions]. Thank you. Our first question comes from the line of David Amsellem with Piper Sandler. Please proceed with your questions.

Hey, thanks. So just a couple of questions here. So with the renegotiations, and I'm sorry if I missed this. Can you talk to, on Belbuca, where you think the gross to net will be next year relative to this year? And then on Xtampza, just talk about what the improvement in gross to net next year versus this year will be? And then switching gears just on capital deployment, I mean in an environment where you don't find an asset that suits you, where you don't pull the trigger on an acquisition, do you get significantly more aggressive on buybacks? How do you think about that and maybe I'll ask it a different way, is how important is it to do an acquisition just in a vacuum? Thanks.

Okay. David, thanks. I'll let Colleen, take the first question on gross to nets for Xtampza and Belbuca, and then I'll come around to your question on capital deployment.

Hey, David, thanks for the question. I guess first off-frame for 2023, so for Belbuca, gross to nets have been in the low 50s and have been pretty stable, and for Xtampza we've updated our range in 2023 to 60% to 62% with the renegotiations for both of those products, we do expect improvement from the 2023 through 2024, and we will further update you in early January when we issue our guidance.

Okay. And David, with regards to your very good question on capital deployment, the first thing I want to emphasize is the financial strength of the business. We're on track this year to deliver the banner year that we set out to. We're confident in growth in 2024. But really important to your question, our outlook in 2025 and 2026 has really improved with the Nucynta new patient, population exclusivity. So the reason I make that point is we are actively engaged, BD continues to be our top priority, but we are committed to being disciplined. We don't have to do a deal, and I think the ability to be clear headed in our pursuit of an acquisition is our greatest strength. As you know we are locked into the paying down of our debt and as we've been very clear, we think there is a significant disconnect between the intrinsic value of the company and where our share price has been. And as we've demonstrated to the degree that persists, we're certainly glad and believe it's a really good use of capital to be leveraging our share repurchase program and would continue to do so.

Okay, that's helpful. Thank you.

Great. Thanks, David.

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

Thank you for the questions. Can you give us a sense of how the non-formulary positions for Xtampza ER expected to play out, what levels of rebates are I guess expected to go away versus what revenue might have [indiscernible] due to the non-formulary position?

Sure, Tim, this is Joe. I'll take that one. I think I understand the question you're asking. So look, with what we accomplished with Xtampza ER this year, we expect to see revenue with Xtampza grow and that will be driven by improved gross to net. From a prescription perspective, there is the potential that there will be pressure on prescription and what prescriptions. And what we're focused on as we finish the year and as we get into next year is mitigating any pressure that being removed from those formularies may put on Xtampza prescriptions and the key point I would emphasize is that in no plan where Xtampza ER was removed from formulary was OxyContin added.

Okay, understood. Can you give us a sense around less around gross to net and just gross price increases, but that's something that the clients had traditionally performed yearly?

Thanks for the question. As you saw at the start of 2023, we moderated our price increases a bit given the Inflation Reduction Act, and we will continue to assess and do the math around that to optimize the level of price increase that we can take at the start of the year and ensuring we don't have tip over to the rebate being in excess of the benefit of the price. So you'll see slightly moderated as you saw in 2023.

Okay understood. And then maybe one last question. With the new 25 million accelerated share repurchase program on top of the 50 million you did earlier in the year. Can you give us an insight into what kind of capital deployment process we're sizing these repurchase programs. And I assume they allow plenty of room for business development, but maybe just how we should think about these programs going into 2024?

Sure, Tim. I'll let Colleen take that one.

Yes, thanks, Tim. So I would say we're optimizing our capital allocation based on our priorities and we really think it's an and not an or where we are ensuring that we can stay opportunistic on the BD front. And if we see something we can pull the trigger there, continuing to rapidly de-lever based on our schedule there over the total four-year period for our term loan and then opportunistically return shares to shareholders via the share repurchase program. So as you've seen this year, we've been pretty active in the back half of the year which, but with the new $25 million that will bring our total to $75 million this year. And we believe our stock remains undervalued and that's a tool I would expect we continue to value going forward.

Thank you.

Thanks, Tim.

Thank you. Our next question comes from the line of Serge Belanger with Needham. Please proceed with your question.

Hi. Good afternoon and thanks for taking my questions. The first one on Belbuca, maybe if you can just talk about the new Medicare Part D plan, you said it was about a 1 million additional covered lives, how does that compare to the existing major Medicare Part D contract that Belbuca had? And secondly, now that Nucynta exclusivity has been extended and the economics will improve, any plans to add additional resources behind that product? Thanks.

Thanks for the question. Serge, I'll have Scott pick the first one and then I'll comment on the Nucynta.

Yes, thanks, Serge. In terms of the 1 million lives that's across some regional Part D plans. And to your question about how it compares to what we currently have. We're currently covered that large plan for about 12 million lives, so it adds another 1 million. And what we're excited about is look it opens the opportunity to fuel growth and we'll continue to engage payers to try to expand coverage further.

And with regards to Nucynta, Serge, the extension will not result in any additional investment beyond what it is that we've been doing. We continue to be committed to our entire PAIN portfolio, but clearly Belbuca and Xtampza ER are our growth drivers and the products where we will be providing the greatest support.

Thank you. [Operator Instructions]. Our next question comes from the line of Les Sulewski with Truist Securities. Please proceed with your question.

Good evening. Thank you for taking my questions. First on Xtampza, what levers do you have to mitigate the declining scripts. And then on Belbuca the patient -- what is the patient profile for Belbuca essentially, any transfers from Xtampza that you're seeing and when do 1 million of the Medicare Part D come online?

Les, thanks for the question. Scott will take those.

Yes, thanks. So, to your first question, Les, when it comes to the levers that mitigate the erosion. The primary lever we have is look where those were lost were almost all commercial plans and so we have a co-pay program that offsets the cost to the patient, and that's a big lever for us in addition to our overall commercialization effort and push through with physicians across all our marketing and sales activities. In terms of the patients and kind of patient flows, what we see across the portfolio are the brands are each uniquely positioned in the minds of the physician and have a unique space, but by all means if someone fails on Xtampza, we will sometimes see a move to Belbuca and vice versa.

Okay. And then Les, with regards to part the opportunity with all Part D plans really sets up for the first quarter of 2024. That's when the renewals take place which are 12 months. It's about 60% of them occur in that time period. So that's what we're focused on and targeting.

That's helpful. One more from me on the BD front. What's your funnel essentially look like now. Are there any opportunities essentially in other non-abuse-deterrent options available in the market now, and then, if not other opportunities out there and what does the competitive landscape essentially look like and also valuations in the current market environment. Thank you.

Thanks for the question. So look therapeutically and we've talked about this in the past with the current market conditions, we're going to be very agile, I wouldn't say we're therapeutically agnostic. But we're open to anything that really hits the profile of a differentiated commercial stage asset with $150 million plus peak sales potential with exclusivity into the 2030s. Whatever acquisition, we're able to achieve, we will not be like the ones we've done in the past where we're leveraging our PAIN infrastructure, we'll be setting a second commercial beachhead. So these will be a lower synergy, more strategically oriented deal for Collegium and that's our focus. In terms of valuations, what I would say, Les, is right now, what we've seen is a lot of receptivity in willingness to engage. And whilst the financial strength of our company and the fact that we don't have to do a deal, we aspire to do one will continue to engage and work with urgency. But we won't strike until we get to a price that we're comfortable with and believe creates value for our shareholders.

Thank you. There are no further questions at this time. I would now like to turn the floor back over to Joe for closing comments.

Thank you, operator and thank you everyone for joining the call. We look forward to updating you on our progress and we hope everyone has a great evening.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.