Collegium Pharmaceutical (NASDAQ:COLL) Q4 2020 Earnings Call

0:00 Greetings and welcome to the Collegium Pharmaceutical fourth quarter 2020 earnings call. At this time, all participants earn a listen-only mode. A brief question and answer session will follow formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alex DeSala. Head of Investor Relations for Collegium. Thank you, Ms. Dasala, you may begin.

0:34 Welcome to Collegium Pharmaceutical's fourth quarter 2020 earnings conference call. This is Alex Dasala, Head of Investor Relations for Collegium. I am joined today by Joe Schifoni, our Chief Executive Officer, Paul Branley, our Chief Financial Officer, and Scott Dreyer, our Chief Commercial Officer. Before we begin today's call, we want to remind participants Thank you for joining us today. In current or future opioid industry litigation and investigations, patent infringement litigation, or other litigation pertaining to our products.

1:34 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 CEO, Joe Schifoni.

2:04 Thank you, Alex. Good afternoon and thank you everyone for joining the call. I'm pleased to be here today to discuss our Q4 and year-end 2020 performance, as well as our 2021 outlook. As you know, Collegium is committed to our mission of being the leader in responsible pain management and is highly dedicated to people living with pain in the communities we serve. We are focused on executing our strategy with dual aims of delivering on our mission and creating value for our shareholders. We do this through maximizing the value of our differentiated pain portfolio, achieving our near-term operational and financial goals and strategically investing in our long-term growth, including investments in our people, Thank you for joining us today.

3:20 Key accomplishments in 2020 include achieving Collegium's first full year of profitability and growing revenue in the face of COVID-19, accelerating Xtamsa ER growth, notably strengthening formulary positions and securing the path to market leadership in 2023, executing the Nucenta franchise transaction, completing construction and validation of the dedicated facility for Xtamsa ER, Making It Commercially Operational, Settling the Teva-Extamsa ER and the Litigation, which contemplates a generic launch no earlier than September 2033 and confirms the strength of the Extamsa ER patent estate, and importantly, supporting our communities and committing as an organization to acting in a socially responsible manner. This includes our partnership with Life Science Cares, and many more.

4:47 and thank them for their commitment to people living with pain and communities we serve. Looking ahead to 2021, we are encouraged by the early trends. Our business is strong and our people are healthy. I'd also like to note that Collegium was recently recognized as a 2021 Top Workplaces USA company, a testament to our mission, core values and culture. We are entering a phase of growth and value creation and we will continue to look for opportunities to maximize the value of our differentiated pain portfolio and strategically invest in the long-term growth of our company. I'm confident that we have the right plan and more importantly people in place to make it happen. I look forward to updating you on our progress throughout 2021.

5:35 I will now hand the call over to Paul for a discussion of the financials.

5:40 Thanks, Joe. Good afternoon, everyone. In 2020, we were able to achieve a financially transformative year for the organization. With the acquisition of the new Cinta franchise and Xtansy ER revenue growth, we delivered on our total revenue targets, achieved our first full year of profitability, generated meaningful cash flows from operations, and paid down debt. Total revenue was $310 million in 2020, an increase of 4.5% from 2019. This was at the midpoint of the guidance range we communicated in early May. A slight miss on extamsa was offset by the Nucenta franchise exceeding our expectations.

6:26 Overall, we view this as strong revenue performance for 2020, as robust underlying demand for our differentiated pain products offset a more challenging and protracted negative impact from COVID-19 than we had anticipated. Xtansy ER net revenue was $128 million in 2020, which was an increase of 22% from 2019. The gross to net discount for Xtansy ER was 61.5% in 2020 compared to 58.5% in 2019. As a result of the new exclusive ER oxycodone formulary wins, We expect gross to net discount to be in the 62% to 64% range in 2021, though it will be lumpy from quarter to quarter.

7:19 NuCintha net revenue was $182 million in 2020, a 5% decrease compared to 2019. The gross to net discount for the NuCintha franchise was 53.1% in 2020. With the payer actions that we took to improve the profitability of the Nucenta franchise, we expect to see pressure on prescriptions in 2021, but achieve relative revenue stability. Operating expenses, which include stock-based compensation, were $123.6 million for 2020, in line with our prior guidance and representing a 3% improvement versus 2019.

8:05 Our non-GAAP-adjusted EBITDA was $139.7 million for the full year 2020 and $38.3 million for the fourth quarter, compared to $8.3 million for the full year 2019 and $5.5 million in the fourth quarter of 2019. The notable improvement in our non-GAAP-adjusted EBITDA was driven by EXTAMSA ER revenue growth and the new center franchise acquisition. Please see our press release for a reconciliation of GAAP to non-GAAP results. As of December 31, 2020, our net cash balance was $174.1 million, which is an increase of $8.7 million from our September 30, 2020 balance and a $4.1 million increase from December 31, 2019.

8:58 Our year-end cash balance was lower than expected due to timing of payments from wholesalers at year-end. In addition to increasing our cash balance in 2020, we also repaid $37.5 million of our term loan. Today, we are reconfirming our prior guidance, which was initially provided on January 6. It's important to note that our annual guidance assumes there is not a return to normal until the second half of 2021. For 2021, we expect EXTAMSA ER revenues in the range of $155 to $165 million, NUSENTA franchise revenues in the range of $175 to $185 million, adjusted EBITDA, which excludes stock-based compensation, in the range of $160 million to $170 million, and finally, total operating expenses, which includes stock-based compensation in the range of $125 to $135 million, which is lower than our original 2020 OpEx guidance and demonstrates our continued commitment to leveraging our cost structure.

10:14 Although it is early in the year, we are encouraged by what we've seen so far in 2021. We are focused on profitability, continuing to generate cash Leveraging our cost structure, looking for ways to strategically invest in the long-term growth of our organization, and taking a disciplined approach to capital allocation. I'll now turn it over to Scott.

10:39 Thanks, Paul. As both Joe and Paul mentioned, 2020 was a transformative year for Collegium, and I wanted to take a moment to recognize the efforts of our commercial organization, who demonstrated great agility and resilience in the face of the COVID-19 pandemic and worked tirelessly to fulfill our commitment to being the leader in responsible pain management. In the fourth quarter, we took specific actions to generate momentum and Xtamsa ER achieved all-time highs for total prescriptions, market share and total prescribers in a quarter. Total prescriptions grew to 144,897, up 17% versus the fourth quarter of 2019. Xtamsa ER exited 2020 with a 25.1% share of the ER oxycodone market, up 6.2 percentage points from December 2019. And there were 14,800 unique prescribers of Xtamsa ER, an increase of 11% versus the fourth quarter of 2019.

11:38 Xtamsa ER saw significant market share growth within every new exclusive account in 2020 and ended the year with an ER oxycodone market share of 54% across all exclusive accounts. For the new Cinta franchise, both total prescriptions and market share remain stable in the fourth quarter. As a result of payer actions we took in 2020 to improve the profitability of the new Cinta franchise, we expect volume to be pressured in 2021, but net revenue to be stable. Looking to 2021, the COVID pandemic remains a challenging dynamic within the marketplace. Although in contrast to 2020, we're actively leveraging key learnings, benefiting from adjustments on our commercial model, and have better visibility overall on potential impacts. As anticipated, COVID continues to impact in-office patient visits, which remain down about 20% versus pre-COVID levels.

12:33 This has a corresponding impact on the new-to-brand market. The productivity of our sales force overall is at pre-COVID levels, although the number of in-office visits are down due to COVID-19. Our sales team continues to adapt, make progress and leverage digital capabilities to engage healthcare providers remotely. We took specific actions at the end of last year to ensure a fast start and position the portfolio for success in 2021. These actions included launching new selling resources and digital engagement tools for our sales representatives, increasing our investment in non-personal promotion and launching new content, executing comprehensive action plans to pull through the broad market access coverage for our entire portfolio, and working very closely with health plans to develop and execute specific action plans to pull through the new and existing exclusive positions for Xtamsa ER. As a result of these actions, through the first six weeks of 2021, we've seen immediate acceleration in TRX volume and market share performance for Xtamsa ER. Q1 2021 quarter-to-date total prescription volume is up 13% over the fourth quarter of 2020.

13:45 For the most recent data week ending February 5th, New to brand ER Oxycodone market share for Xtamsa ER was 46%, up from 29% the last week of December in 2020. We're encouraged by these trends, but recognize that it's early. The commercial team is focused on accelerating performance for Xtamsa ER and ensuring stable contributions from the new Sinta franchise. I'm confident we have taken the actions necessary to accomplish these objectives, and I look forward to updating you as the year progresses. With that, I'll turn it back to Jeff.

14:18 Thanks, Scott. I will now open the call up for questions. We will now be having our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may also press star 2 if you would like to remove your question from the queue. One moment, please, while we now poll for questions. Our first question comes from David Anselm with Piper Jeffrey. Please proceed with your question.

14:57 Thanks. I just had a couple. So first on Nusento, this is kind of a long-term question, but with the changes in contracting or basically getting out of suboptimal contracts, Can you just talk about the cadence of volumes this year, just in terms of what we'll see in terms of volume degradation and how better economics makes up for that as the year progresses? So that's number one. And then secondly, can you talk through your latest thinking on biz dev and M&A?

15:45 I know, Joe, you have... talked about trying to bring in another asset, particularly with the Nusenta LOE at the end of 2025. Maybe talk through philosophically what you're looking at and how you're thinking about it these days. Thanks.

16:05 Great. Thanks, David. I'm going to ask Scott and Paul to split the question on Nusenta. Scott can speak to the cadence of volume, and Paul perhaps can talk a bit about price and revenue.

16:18 Yeah, thanks, David. So when we look at volume for the year, what we really see is pretty steady volume decline through the first half of the year, maybe a little bit greater in the first half than the second half because of when the actual changes took place. And I'll let Paul speak to the revenue side.

16:35 Yeah, on the revenue side, we should see the effect, the benefit of canceling and renegotiating contracts in the first quarter of the year. and then it should be steady throughout the year. So the impact is really in Q1 that we'll see difference in the economics of the franchise.

16:58 And David, the one thing I would add on Nusenta, we also will get a benefit of a price increase that we took at the beginning of the year. To your question on business development, how it is we think about it and what I would emphasize there is one, We're really encouraged that the business is in a strong position. We believe it's poised for growth and we have a long runway. We're certainly committed because of that to being disciplined in our approach. So we don't feel that we need to do a deal just to get a deal done. We're really focused on doing a really good deal. To that end, we're active, we're focused, and we're engaged. So we know and have priorities of what it is that we like. We're engaged and engaged That process and business development for us, we continue to be focused on and our highest priority being non-opioid pain solutions with the potential later stage development, with the potential of being able to generate revenue in that 2024 to 2026 timeframe.

18:06 Okay. Thank you. Great. Thanks, David. Thank you. Our next question comes from Tim Lugo with William Blair. Please proceed with your question.

18:18 Hey, this is Lachlan. I'm for Tim. Thanks for taking the questions. I guess, first of all, just a quick clarifying question to Scott. I think you said you had 46% new to brand share in the most recent week. Was that within exclusive plans or was that of the overall market? And then, yeah, the second question, yeah, obviously it's early, but Can you speak to the dynamics you're seeing in the plans where you have parity position? How's that looking in the first nearly two months of the year, and how does it compare to your expectations? Great.

18:57 Yeah, thanks for the questions, Lachlan. So first, the neuter brand share I shared of 46%, that's in the overall business, across all business through week ending February 5th, not just exclusives. And then second, regarding the parity position, so Yeah, what we've seen there is that position went into place at Optum in July. We've seen a little less than a share point of growth every month. It's our first large parity, so we know it's going to behave different than our exclusives. And what we expect is continued steady growth there with a chance for maybe greater growth as we get to the second half of the year. So that's what we're seeing and what we anticipate.

19:34 And Lachlan, this is Joe. I would also, from a managed care perspective, emphasize that We're seeing market share gains broadly across all of the books of our business. At this point in the year, it skews to the exclusive, in particular Medicare Part D. And as Scott said, as the year goes on, and what's particularly important where we're in parity positions is when we get to that new normal, when people are returning to regular in-office patient visits. So that's where we would expect to see a little bit of lift to the back half of the year.

20:11 Thank you. Thank you. Our next question comes from Serge Bellinger with Needham & Company. Please proceed with your question.

20:23 Hey, good afternoon. A few questions for me. First, let's go back to 4Q. It stands as a bit of a drop from third quarter, despite an increase in prescriptions. Was that just due to A change in growth to NETS. And then in terms of the overall business environment, I think last quarter you mentioned that patient physician visits were down 20%. Has that number improved at all over fourth quarter or the first quarter? And then last question for Paul, a price increase of about 10% on both Xtanza and Nucenta. I think in the past you've realized about half of that.

21:12 When do you expect that to take effect, and will you realize, will you still realize half of it now that you have parity plans and not just exclusives? Thanks.

21:27 Okay, Serge, so Paul will take your first and third question, and then Scott will take the second.

21:33 Great.

21:34 Hi, Serge. So first question about the decline of expenditure revenue in the fourth quarter compared to the third quarter. That is driven by gross to net. Gross to net discount, as we've said, is lumpy through the year. In the fourth quarter, it increased 2.3 points from the third quarter. So it was 60.9% in the third quarter, and it went up to 63.2 in the fourth quarter. So that's the slight decline in extensor revenue in the fourth quarter. And then I'll jump over to your third question, which was about the price increase. We will realize about five or six points of the price increase because of price protection built into contracts, and we will see the benefit of that right in January. So there's no lagging to start seeing the benefit of that. and I'll hand it over to Scott for your second question.

22:35 Yeah, thanks, sir. So regarding patient visits, where we sit right now, patient visits are still down approximately 20% and what we anticipate is sometime during the second half of the year is where we might see some of the bounce back of those visits.

22:51 Thank you. Thank you. Our next question comes from Brandon Fulks with Cantor Fitzgerald. Please proceed with your question.

23:04 Hi, thanks for taking my questions. Maybe just firstly following on from an earlier question, Joe, how do you think about sort of moving earlier in terms of R&D profile in terms of business development and as you build the company out? And then I echo your comment about a very good source to 2021. How should we think about the trajectory? Obviously, last year was very difficult with COVID. This year, it seems like we're going to have tailwind in the second half of the year with sort of hopefully reopening. So just maybe as much as you can, what is your thinking this year in terms of the growth trajectory on extanza for the second half of the year, maybe in a normalized environment as well as with COVID? And then lastly...

23:52 What's your updated thinking? Any update, I guess, on an OxyContin generic? Thank you.

23:58 Okay. Thanks, Brandon. So, look, first with the business development question and from an R&D perspective, as we said, we believe we have capabilities that we can leverage as it pertains to later stage development assets. So, we're looking for programs that are either in Phase 2 or Phase 2 ready, and we think that aligns to the capabilities. of Collegium. When you think of the year as it pertains to extamps to ER, we believe that what we expect to see is the immediate acceleration that we've seen with strong overall growth for the year skewed to the first half of the year. But to your point, if in fact we're all fortunate enough that there's a return to normal in particularly driven by the 23 million lives that we have in a parity position, We think although growth will continue to be moderated in the second half of the year, perhaps we can do a bit better than what we've done the past couple of years. And I'll let Paul take the third question.

25:03 Great. Thanks, Joe. Yeah, so for Purdue, we don't have a complete line of sight as to potential generics there, but what we know is that they have 19 Orange Book listed patents, which includes 10 that have expiration dates between 2027 and 2030. So that's what we know as far as their IP situation.

25:32 Great. Thank you very much.

25:34 Thanks, Brandon. Thank you. As a reminder to our audience, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Kevin Kendra with G-Research. Please proceed with your question.

25:53 Hi, thanks for taking the questions. First, I want to ask about how are you thinking about what the trajectory could look like for the business coming out of COVID? I talked about, obviously, a benefit for Xtanza, but thinking more about Nusenta, some of the stickiness there seems to be a function of the lack of visits that we're seeing and the lack of switching that tends to happen. So, Can you maintain that stability that you anticipate for Nusenta as we come out of COVID, whenever that might be?

26:26 Yeah. So, Kevin, this is Joe. I'll take that one. Big picture, when you look at the year for Nusenta, we expect there to be pressure on volume as a result of the execution of our contract strategy offset. by favorability in terms of from a price and gross to net perspective, which we believe will lead to sequentially stable revenue in 2021. Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for any closing remarks.

27:08 Great. Thank you. Thank you all for your attention. 2020 was a truly remarkable and transformative year for Collegium, and we head into 2021 with encouraging momentum and a strong financial position. We are entering a phase of growth and value creation for the organization. We will continue to focus our efforts on maximizing the value of our differentiated portfolio of paying products, achieving our near-term operational and financial goals, I look forward to updating you on our progress and have a great evening. Ladies and gentlemen, this concludes today's webcast. You may now disconnect your lines at this time.

27:55 Thank you for your participation and have a great day.