Collegium Pharmaceutical, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017; unaudited condensed consolidated results. Collegium is a commercial-stage specialty pharmaceutical company whose lead product is Xtampza ER, an abuse-deterrent extended-release oxycodone launched in June 2016.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Net product revenue | $3.56m | $0 | $5.73m | $0 |
| Cost of product revenue | $0.58m | $0 | $0.95m | $0 |
| Gross profit / margin | $2.98m / 83.8% | — | $4.78m / 83.5% | — |
| Research and development | $2.18m | $4.30m | $4.31m | $8.36m |
| Selling, general and administrative | $22.06m | $20.17m | $44.91m | $31.70m |
| Operating loss | $(21.26)m | $(24.47)m | $(44.43)m | $(40.06)m |
| Net loss | $(21.12)m | $(24.52)m | $(44.20)m | $(40.17)m |
| Basic and diluted loss per share | $(0.72) | $(1.05) | $(1.50) | $(1.73) |
Gross profit and margins are calculated from reported product revenue less cost of product revenue. Cost of product revenue included excess-inventory charges of $257,000 in Q2 and $350,000 in the first half. Revenue was recognized when Xtampza was prescribed to patients, rather than upon shipment, because the company said it could not yet reliably estimate returns.
Liquidity, cash flow and debt
- Cash and cash equivalents were $111.2m at June 30, 2017, down from $153.2m at December 31, 2016. Current assets were $120.6m and current liabilities $28.6m.
- First-half operating cash use was $41.2m, versus $32.4m in the prior-year period. Investing cash use was $0.5m, versus $2.5m. Financing used $0.4m, compared with $49.9m provided in 2016, when the company received $51.2m of public-offering proceeds.
- Term-loan carrying value totaled $2.8m at June 30 ($2.4m current and $0.4m long-term), down from $4.1m at year-end. The company repaid $1.3m of term debt in the first half.
- Management expected available cash, together with anticipated Xtampza inflows, to fund operating expenses, debt service and capital expenditures into 2019. This is an estimate based on assumptions; the company said it may need additional financing and may use available capital sooner than expected.
Changes, outlook and material risks
- Compared with Q2 2016, Q2 2017 revenue reflects Xtampza commercialization; the quarterly net loss narrowed by $3.4m. For the first half, however, the net loss increased by $4.0m year over year as SG&A rose $13.2m, more than offsetting lower R&D expense. Management attributed higher SG&A mainly to payroll and benefits, commercial sales and marketing, and litigation costs; lower clinical-trial and consulting costs partly offset the increases.
- The company expected continuing losses and significant commercialization and development spending. Its sales organization was detailing Xtampza to about 10,400 physicians, with approximately 140 representatives, and also had a separate team focused on institutional settings. No specific revenue or earnings guidance was provided.
- Collegium expected to launch licensed product Onsolis in mid-2018, subject to FDA approval of a manufacturing-transfer supplement. The license includes up to $21m in contingent milestones, including $4m on first U.S. commercial sale, plus royalties in the upper teens on U.S. net sales. No milestone or royalty liability had been recognized at June 30, 2017.
- Purdue Pharma patent litigation remained unresolved. Purdue sought monetary relief and an injunction; the company said it could not assess the likelihood of an unfavorable outcome or estimate potential loss. The court had heard arguments on claim construction and the company’s summary-judgment motion; no trial date was set.
- The company anticipated that adoption of ASC 606 in 2018 could materially affect reported results, particularly by moving revenue and related cost recognition to shipment and requiring estimates of returns. The impact was still under evaluation.
- Key business risks include limited Xtampza revenue and commercialization uncertainty, opioid-market and reimbursement pressures, competition, customer concentration, dependence on third-party manufacturing and controlled-substance supply, regulatory and post-marketing requirements, and the need for future capital. The company reported effective disclosure controls as of June 30 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Xtampza sales growth, channel inventory, prescription sell-through, return estimates and the timing of revenue recognition.
- Whether the cash-runway estimate into 2019 remains achievable as cash declines and operating cash use continues.
- Developments and potential financial exposure in Purdue litigation, including any ruling, settlement, damages or injunction risk.
- FDA progress and timing for Onsolis manufacturing-transfer approval, and the potential milestone and royalty obligations.
- The eventual financial-statement effects of ASC 606 adoption and the company’s ability to obtain reimbursement and sustain commercial uptake.