Collegium Pharmaceutical, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 6, 2021. Collegium is a specialty pharmaceutical company selling Xtampza ER and the Nucynta ER and IR products.
Financial results
Unless noted otherwise, amounts are in millions of dollars. Comparative period is Q1 2020.
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net product revenue | $87.7 | $76.5 | +14.7% |
| Gross profit / gross margin | $55.6 / 63.4% | $39.0 / 51.0% | Margin +12.4 pts |
| Operating income / margin | $21.2 / 24.2% | $5.1 / 6.6% | |
| Net income / margin | $15.7 / 17.9% | $0.5 / 0.6% | |
| Diluted EPS | $0.41 | $0.01 | |
| Adjusted EBITDA (non-GAAP) | $45.3 | $20.5 | +121% |
| Cash from operating activities | $20.6 | $(6.7) |
Revenue comprised $35.4 million from Xtampza ER and $52.3 million from Nucynta. Xtampza revenue increased $3.9 million, mainly on higher volume and price. Nucynta revenue increased $7.3 million, primarily due to price and gross-to-net adjustments, partly offset by lower sales volume.
Cost of product revenue excluding amortization declined to $15.3 million from $27.2 million, mainly because the $14.2 million of Assertio sales-based royalties recorded in Q1 2020 ceased after the February 2020 Nucynta acquisition. Intangible amortization increased to $16.8 million from $10.3 million. Operating expenses were broadly stable at $34.4 million; lower sales and marketing costs were partly offset by higher compensation and professional fees. Interest expense rose to $5.7 million from $4.8 million.
Balance sheet and liquidity
- Cash and cash equivalents were $182.8 million at March 31, 2021, versus $174.1 million at year-end 2020; cash, cash equivalents and restricted cash totaled $185.3 million.
- Current assets were $296.3 million and current liabilities $230.2 million, for a current ratio of approximately 1.29. Accounts receivable was $93.2 million; accrued rebates, returns and discounts were $156.2 million.
- Debt carrying amounts were $145.7 million for secured term notes and $139.3 million for convertible senior notes, approximately $285.0 million combined. The term notes bear interest at LIBOR (2.0% floor) plus 7.5%, are secured by substantially all material assets, and include a covenant requiring at least $200 million in annual net sales. Convertible notes have $143.75 million principal, bear 2.625% interest and mature in 2026.
- Cash used in investing activities was $0.4 million, versus $367.6 million in Q1 2020, when the Nucynta acquisition closed. Financing used $11.5 million, including $12.5 million of term-note repayments.
Changes, outlook and key risks
- Management said available cash and expected product cash inflows should fund operations, debt service and capital expenditures for the foreseeable future under its current business plan. No quantified revenue or earnings guidance was provided.
- COVID-19 continued to affect demand and promotion, including fewer new patients and restricted physician-office access; it also reduced certain travel and marketing-related expenses. Management noted uncertainty about the duration of disruption and the possibility of renewed restrictions.
- The company early adopted ASU 2020-06 on January 1, 2021. Adoption increased the carrying value of convertible notes by $39.5 million and reduced additional paid-in capital by $44.8 million, while reducing accumulated deficit by $5.3 million. It reduced Q1 interest expense and increased net income by $1.6 million and diluted EPS by $0.02.
- Material contingencies include Purdue patent litigation concerning Xtampza ER, including a new suit filed April 9, 2021, and Nucynta patent litigation. Purdue has sought monetary relief and injunctive remedies but has not quantified damages; the company said it could not estimate the likelihood or range of loss. Opioid-related cases and state investigations also remain; loss estimates were not provided.
- Teva settled Xtampza ER patent litigation; under the license, Teva may market its generic product on or after September 2, 2033, subject to FDA approval and possible acceleration under specified circumstances.
- Key business risks include opioid regulation and litigation, generic competition, reimbursement and pricing pressure, customer concentration, reliance on third-party manufacturers and a single API supplier, and debt covenants. Three wholesale distributors accounted for 36%, 31% and 30% of product shipments, respectively.
Investor verification priorities
- Assess the durability and drivers of revenue growth, including pricing, volume, rebates and the reported lower Nucynta sales volume.
- Review cash generation alongside debt repayment needs, the $200 million annual-sales covenant and the secured lender’s remedies upon default.
- Track developments and potential exposure in Purdue patent cases and opioid-related litigation and investigations; the filing does not provide a clear loss estimate.
- Evaluate COVID-19 effects, distributor concentration, API and manufacturing continuity, and exposure to generic products, including the Teva license terms.
- Consider the effects of non-GAAP exclusions, convertible-note dilution and the full deferred-tax-asset valuation allowance; any future release of that allowance is uncertain.