Collegium Pharmaceutical, Inc. — 2016 Form 10-K
Reporting period: Year ended December 31, 2016; filed March 10, 2017. The filing also reports unaudited fourth-quarter results. Collegium is a specialty pharmaceutical company focused on abuse-deterrent medicines using its DETERx platform. Xtampza ER, its first product, received FDA approval in April 2016 and launched in June.
Financial results and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Net product revenue | $1.711 million | $0 |
| Cost of product revenue | $0.213 million | $0 |
| Research and development | $14.948 million | $7.975 million |
| Selling, general and administrative | $80.632 million | $18.932 million |
| Net loss | $94.176 million | $27.255 million |
| Net loss per share | $3.88 | $1.48 |
| Cash used in operating activities | $75.053 million | $21.567 million |
| Cash and cash equivalents at year-end | $153.225 million | $95.697 million |
| Working capital at year-end | $132.979 million | $88.451 million |
| Term loan payable at year-end | $4.146 million | $6.813 million |
Gross profit on reported product revenue was approximately $1.498 million (about 87.6% of revenue); sales were still at an early launch stage. The company reported an accumulated deficit of $223.184 million. Cash used in investing activities was $2.977 million and cash provided by financing activities was $135.558 million. Financing included approximately $137.3 million net proceeds from two 2016 equity offerings, partly offset by $2.7 million of term-loan repayments. The share count rose from 20.7 million at 2015 year-end to 29.4 million at 2016 year-end.
At year-end, current assets were $158.575 million and current liabilities were $25.596 million. Total liabilities were $27.109 million. Management said cash, cash equivalents and expected Xtampza inflows should fund operations, debt service and capital needs into 2019; this is an estimate dependent on sales and spending assumptions, not a guarantee. No cash dividends were paid or expected in the foreseeable future.
Fourth quarter: Net revenue was $1.303 million, operating loss was $27.579 million and net loss was $27.559 million. Selling, general and administrative expense was $25.367 million and research and development expense was $3.331 million.
Changes versus prior period
- Xtampza generated the company’s first reported product revenue in 2016, following its June launch; 2015 product revenue was zero.
- Net loss widened to $94.176 million from $27.255 million, while operating cash use increased to $75.053 million from $21.567 million.
- SG&A rose by $61.7 million, principally reflecting commercial hiring and launch activity, sales and marketing, post-marketing and regulatory costs, and stock-based compensation. R&D increased by $6.9 million, including clinical trials and Onsolis manufacturing-transfer work.
- Cash increased after the 2016 public offerings, while equity issuance materially diluted existing shareholders.
Business, outlook and key risks
- Xtampza: FDA-approved extended-release oxycodone for qualifying severe chronic pain. Its label supports sprinkling the capsule contents on soft food or administering them through specified feeding tubes. The company reported submitting an FDA supplemental application with comparative pharmacokinetic data and a marketing application in Canada.
- Pipeline and Onsolis: The hydrocodone candidate entered clinical testing in 2016; the oxymorphone program has FDA Fast Track status. Collegium licensed U.S. rights to Onsolis, a fentanyl buccal film for breakthrough cancer pain, subject to FDA approval of a manufacturing-transfer supplement. The filing gives differing expected launch timing: first half of 2018 in the business discussion, but second half of 2017 in the intangible-asset note.
- Outlook: Management expects continued losses and increased commercialization, research, clinical, manufacturing, regulatory and compliance spending. The filing provides no quantified sales or earnings guidance and says additional financing may be needed.
- Legal contingency: Purdue continues to assert infringement claims involving three patents and seeks damages and an injunction against sales of accused products. Collegium disputes the claims and filed for summary judgment; the case was in early discovery, with no trial date. The company said it could not assess the likelihood of an unfavorable outcome or estimate a potential loss.
- Commercial and operating risks: Success depends on Xtampza adoption, pricing and reimbursement, continued FDA-approved labeling and post-marketing compliance, and competition from branded and generic opioids. Xtampza is a Schedule II controlled substance subject to DEA quotas and other restrictions. The company relies on a sole contract manufacturer and a single current oxycodone API supplier; alternative sources would take time and cost to qualify. Three customers represented 35%, 28% and 27% of 2016 revenue, respectively.
- Onsolis commitments: The license can require up to $21 million in milestone payments, including $4 million on first U.S. commercial sale, upper-teen royalties on U.S. net sales, and reimbursement of up to $2 million for manufacturing-transfer expenses. These contingent payments were not accrued at year-end.
- Other items: The company reported effective disclosure controls and management assessed internal control over financial reporting as effective. The independent auditor did not attest to internal-control effectiveness because of the company’s emerging-growth-company exemption.
Investor verification priorities
- Check subsequent Xtampza prescription, sell-through, net sales, returns, payer coverage and commercial trends against the company’s cash-burn and 2019 runway assumptions.
- Review the status and potential financial or commercial effect of Purdue’s patent litigation, including any later court rulings or settlement developments.
- Confirm required Xtampza post-marketing studies, FDA labeling status, and DEA supply quotas and compliance.
- Reconcile the filing’s inconsistent Onsolis launch estimates and verify manufacturing-transfer approval, costs, milestones and royalty terms.
- Assess dependence on the concentrated customer base, sole manufacturing and API sources, and the impact of future equity financing and dilution.