Collegium Pharmaceutical, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Amounts below are in millions of dollars except per-share data.
Business context
Collegium is a specialty pharmaceutical company commercializing Xtampza ER and the Nucynta ER and IR opioid products. It earns revenue from product sales. Collegium pays Grünenthal royalties equal to 14% of Nucynta net sales.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net product revenue | $78.8 | $79.2 | $249.5 | $233.7 |
| Gross profit / margin | $46.1 / 58.5% | $48.2 / 60.9% | $152.0 / 60.9% | $135.5 / 58.0% |
| Operating income / margin | $14.1 / 17.9% | $19.6 / 24.8% | $51.8 / 20.7% | $41.2 / 17.6% |
| Net income | $8.0 | $11.3 | $96.6 | $19.8 |
| Diluted EPS | $0.22 | $0.32 | $2.42 | $0.56 |
| Adjusted EBITDA (non-GAAP) | $37.3 | $41.8 | $122.8 | $101.4 |
For the nine months, operating cash flow was $67.4 million, versus $71.4 million; investing cash outflow was $1.4 million, versus $372.3 million, primarily reflecting the 2020 Nucynta acquisition; and financing cash outflow was $46.8 million, versus $298.9 million of inflow. Cash, cash equivalents and restricted cash totaled $195.8 million at quarter-end, including $193.2 million of unrestricted cash.
At September 30, 2021, term notes had a net carrying amount of $122.0 million and convertible notes had a net carrying amount of $139.7 million. Current term-note principal was $48.1 million. Total liabilities were $490.7 million; current assets were $363.2 million and current liabilities were $269.0 million. Accrued rebates, returns and discounts were $191.7 million.
Material changes versus comparable periods
- Q3 revenue declined $0.3 million (about 0.4%): Xtampza ER fell $2.1 million, partly offset by a $1.8 million increase in Nucynta revenue. For the nine-month period, revenue rose $15.8 million (about 6.8%), driven mainly by Nucynta.
- Q3 net income fell to $8.0 million from $11.3 million, while operating income also declined. Higher SG&A and product costs contributed; SG&A increased $4.1 million in the quarter.
- Nine-month net income includes a $63.0 million discrete deferred tax benefit from releasing most of the valuation allowance on deferred tax assets. The benefit increased nine-month EPS by $1.79 basic and $1.53 diluted; it is not a measure of recurring operating performance.
- Nine-month cost of product revenue excluding amortization decreased $7.1 million, primarily because Assertio royalties ceased after the February 2020 Nucynta acquisition. Nucynta intangible amortization increased $6.5 million year over year.
- Interest expense decreased in both periods, mainly due to lower non-cash convertible-note interest following early adoption of ASU 2020-06 and term-note repayments. The accounting change also affected EPS; for the nine months it increased basic EPS by $0.13 but decreased diluted EPS by $0.10.
Outlook, risks and unusual items
- Management expects available cash and anticipated product cash inflows to fund operating expenses, debt service and capital expenditures for the foreseeable future; no numerical revenue or earnings guidance is provided.
- Management says COVID-19 continues to affect revenue: pain-patient office visits remained below pre-pandemic levels, potentially reducing new patient starts. The duration and effects remain uncertain.
- The company repurchased $17.5 million of shares through September 30 under a $100 million authorization. In November 2021, the board authorized a $25 million accelerated share repurchase under that program.
- Material litigation includes Purdue patent disputes concerning Xtampza ER and Nucynta, plus opioid-related cases and government investigations. Collegium says it cannot assess the likelihood of an unfavorable outcome or estimate potential losses. It is cooperating with subpoenas or investigative demands from four state attorneys general.
- Key operating risks include opioid regulation and potential taxes, reimbursement and gross-to-net estimates, competition, COVID-related effects, reliance on third-party manufacturers and active-ingredient suppliers, and customer concentration. Three wholesale distributors each represented approximately 35%, 31% and 31% of product shipments for the nine months, respectively.
- The secured term-note agreement includes a covenant requiring $200 million in annual net sales, along with other restrictions; covenant noncompliance could trigger default and acceleration. Management reported disclosure controls were effective as of quarter-end.
Investor verification priorities
- Assess recurring earnings and cash generation excluding the $63.0 million tax valuation-allowance release.
- Track product-level sales, gross-to-net deductions, returns and the substantial accrued rebates balance.
- Review debt amortization, the $200 million annual net-sales covenant and capacity for share repurchases alongside liquidity needs.
- Monitor Purdue patent litigation, opioid-related claims and investigations, including any developments that could affect commercialization or require financial reserves.
- Verify whether COVID-related prescribing patterns, distributor concentration, supply availability and manufacturing transitions affect future sales.