Collegium Pharmaceutical, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Amounts below are in millions of dollars unless otherwise noted. Collegium markets Xtampza ER and the Nucynta products for pain management.
Financial performance
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Net product revenue | $79.2 | $72.9 | $233.7 | $222.5 |
| Gross profit | $48.2 | $26.2 | $135.5 | $77.9 |
| Gross margin | 60.9% | 35.9% | 58.0% | 35.0% |
| Operating income (loss) | $19.6 | $(6.4) | $41.2 | $(21.4) |
| Net income (loss) | $11.3 | $(6.1) | $19.8 | $(20.5) |
| Diluted EPS | $0.32 | $(0.18) | $0.56 | $(0.62) |
- Revenue mix: Q3 Xtampza ER revenue was $32.1 million, up from $26.5 million; Nucynta revenue was $47.1 million, versus $46.5 million. For nine months, Xtampza revenue rose to $97.2 million from $77.6 million, while Nucynta revenue declined to $136.6 million from $144.9 million.
- Cash flow: Nine-month operating cash flow was $71.4 million, versus $12.1 million. Investing used $372.3 million, principally for the Nucynta acquisition; financing provided $298.9 million, chiefly from new debt. Cash, cash equivalents and restricted cash ended at $168.0 million, including $165.4 million of unrestricted cash, compared with $170.0 million at year-end 2019.
- Liquidity and balance sheet: Current assets were $262.1 million and current liabilities $242.4 million. Total liabilities were $471.2 million, versus $218.9 million at year-end 2019; shareholders’ equity was $172.7 million. Accrued rebates, returns and discounts were $170.2 million.
- Debt: The company reported term notes with a net carrying value of $169.2 million and convertible senior notes with a net carrying value of $97.8 million. The term loan carries interest at LIBOR (2.0% floor) plus 7.5%, is secured by substantially all material assets, and amortizes quarterly through 2024. The $143.8 million face-value convertible notes bear 2.625% interest and mature in 2026. The company reported compliance with term-loan covenants at quarter-end.
Material changes versus the prior period
- Revenue increased 8.6% in Q3 and 5.1% for the nine-month period. Management attributed Xtampza growth to increased demand and price; Nucynta’s nine-month decline reflected lower volume, partly offset by price.
- Gross profit improved substantially as the Nucynta acquisition ended most royalty payments to Assertio. Q3 2019 included $30.2 million of sales-based royalties to Assertio; the nine-month comparison was $94.2 million in 2019 versus $19.1 million in 2020, including royalties accrued before the February 2020 acquisition closing. Higher intangible amortization partly offset the benefit.
- Q3 SG&A fell $3.7 million, partly from reduced travel and marketing activity during COVID-19. Nine-month SG&A fell $4.4 million; lower professional, marketing and travel costs were partly offset by higher opioid-related product taxes, compensation, insurance and regulatory costs.
- Interest expense rose to $8.1 million in Q3 and $21.1 million for nine months, mainly due to debt raised for the Nucynta acquisition. The acquisition was funded in part by a $200 million secured term loan and the convertible notes.
Outlook, risks and contingencies
- Management said existing cash and expected product cash inflows should fund operations, debt service and capital expenditure requirements for the foreseeable future. The filing provides no quantified revenue or earnings guidance.
- COVID-19 reduced new patient starts and limited in-person promotion because many physician offices were closed or operating on a limited basis. It also reduced some expenses; management expected disruption to continue, with timing uncertain.
- On September 29, 2020, Collegium settled its Xtampza ER patent litigation with Teva. Teva’s generic license is scheduled to begin on or after September 2, 2033, subject to FDA approval and possible acceleration under specified circumstances. Settlement terms are partly confidential and subject to government review.
- Purdue patent litigation involving Xtampza ER remained pending, as did Nucynta litigation subject to a bankruptcy stay. The company said it could not estimate the likelihood or amount of potential loss. It also disclosed opioid-related lawsuits and investigations by several state attorneys general.
- Key risks include opioid regulation and litigation, generic competition, reimbursement and pricing pressure, reliance on a limited number of manufacturers and distributors, controlled-substance supply constraints, and debt covenants. Three distributors accounted for 34%, 31% and 30% of product shipments, respectively, for the nine-month period.
Investor verification priorities
- Track Xtampza and Nucynta demand, pricing, gross margin, and the effect of royalties and amortization following the Nucynta acquisition.
- Review term-loan covenant compliance and debt-service capacity, including the $200 million annual net-sales covenant and scheduled principal repayments.
- Monitor COVID-19 effects on prescribing, sales access, manufacturing and cash generation, alongside the company’s liquidity assumptions.
- Follow the Teva settlement’s regulatory status and any acceleration provisions, and developments in Purdue patent cases and opioid-related proceedings.
- Assess exposure to concentrated wholesalers and single-source active pharmaceutical ingredient and manufacturing arrangements.