Business context and reporting period
Collegium Pharmaceutical, Inc. is a specialty pharmaceutical company focused on pain management. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021. Its marketed products are Xtampza ER and the Nucynta ER and IR products. Amounts below are in millions of dollars unless noted.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net product revenue | $82.9 | $78.1 | $170.7 | $154.6 |
| Gross profit | $50.2 | $48.4 | $105.8 | $87.4 |
| Income from operations | $16.4 | $16.5 | $37.6 | $21.6 |
| Net income | $72.8 | $8.1 | $88.5 | $8.5 |
| Operating cash flow | Not provided separately | Not provided separately | $50.1 | $37.2 |
| Adjusted EBITDA (non-GAAP) | $40.1 | $39.1 | $85.5 | $59.6 |
Q2 gross margin was approximately 60.6% (versus 62.0%); operating margin was approximately 19.8% (versus 21.2%). GAAP net income includes a substantial discrete tax benefit and is not a measure of recurring operating improvement on its own.
For the six months, Xtampza ER revenue was $68.4 million and Nucynta revenue was $102.2 million. At June 30, cash and cash equivalents were $202.8 million; current assets were $318.5 million and current liabilities $226.8 million (current ratio approximately 1.40). Operating cash flow was $50.1 million; investing cash outflow was $1.2 million and financing cash outflow was $20.3 million. Cash, cash equivalents and restricted cash increased $28.7 million during the period.
Debt at June 30 included term notes with $137.5 million principal outstanding ($133.9 million carrying value, net of discount and issuance costs) and 2.625% convertible senior notes due 2026 with $143.8 million principal ($139.5 million carrying value). Term notes are secured, bear interest at three-month LIBOR subject to a 2% floor plus 7.5%, and include a $200 million annual net-sales covenant.
Material changes versus prior comparable periods
- Q2 revenue rose $4.9 million year over year, driven by $5.4 million higher Nucynta revenue, partly offset by a $0.6 million Xtampza ER decline. Six-month revenue rose $16.1 million, with increases in both product lines.
- Q2 Nucynta growth reflected improved price and gross-to-net adjustments, partly offset by lower volume. Xtampza ER Q2 revenue declined as higher gross-to-net deductions outweighed volume and price gains.
- Six-month cost of product revenue excluding amortization fell $8.9 million, largely because 2020 included $14.2 million of Assertio royalties that ended with the February 2020 Nucynta acquisition. Intangible amortization increased $6.5 million year over year.
- Q2 interest expense decreased $2.9 million, primarily reflecting lower noncash convertible-note interest after adoption of new accounting guidance and term-note repayments. Six-month operating cash flow improved $12.9 million.
- Basic/diluted EPS for Q2 was $2.06/$1.79, versus $0.23/$0.23. For the six months it was $2.52/$2.20, versus $0.25/$0.24. The 2021 figures include a $62.6 million deferred-tax benefit from releasing most of the valuation allowance; management said this benefit added $1.77/$1.52 to Q2 basic/diluted EPS and $1.78/$1.52 to six-month EPS.
Outlook, commentary, risks and unusual items
Management expects cash and product cash inflows to fund operating expenses, debt service and capital expenditures for the foreseeable future under its current business plan. The filing gives no numerical revenue or earnings guidance. Management expects significant commercialization spending to continue.
Management says COVID-19 continues to reduce new patient starts and limit sales-force access to physicians, while also reducing some travel, marketing and congress expenses. Further infection surges, including Delta-variant surges, could renew restrictions. The company was transitioning Nucynta ER manufacturing to Patheon; validation, regulatory approval and supply execution remain risks.
Notable legal exposures include ongoing Purdue patent litigation concerning Xtampza ER and Nucynta, opioid-related lawsuits, and state investigations. Purdue seeks monetary and injunctive relief; alleged damages are unquantified. The company says it cannot assess the likelihood or estimate a loss range for these matters. The filing also identifies dependence on a single active-ingredient supplier and three wholesale distributors, which represented 35%, 31% and 30% of shipments, respectively, for the six-month period.
Other material risks include opioid regulation and potential taxes, reimbursement and pricing pressure, competition (including generics), product acceptance, supply constraints, and compliance with debt covenants. The $62.6 million tax benefit is a discrete, noncash valuation-allowance release. The company early adopted ASU 2020-06, increasing the carrying amount of convertible notes by $39.5 million at adoption and changing diluted EPS treatment.
Important facts for investors to verify
- How much of reported earnings and EPS growth is attributable to the one-time deferred-tax valuation-allowance release, versus ongoing operations?
- Whether revenue, prescription volume, gross-to-net deductions and product mix remain favorable, particularly for Xtampza ER and Nucynta.
- Progress and costs in the Nucynta ER manufacturing transition, and the adequacy and continuity of controlled-substance and active-ingredient supplies.
- Compliance with the term-loan sales covenant, debt-service requirements and the company’s cash-flow assumptions.
- Developments in Purdue patent cases, opioid litigation and state investigations, including any quantified potential exposure.
- Continued reliance on a small number of distributors and the impact of COVID-19 restrictions on patient starts and physician access.