Collegium Pharmaceutical, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial amounts below are in millions, except per-share data. The company sells Xtampza ER and Nucynta products; its portfolio expanded in March 2022 with the acquisition of BDSI, adding Belbuca, Symproic, and Elyxyb.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net product revenue | $127.0 | $78.8 | $334.3 | $249.5 |
| Gross profit | $58.8 | $46.1 | $159.7 | $152.0 |
| Gross margin | 46.3% | 58.5% | 47.8% | 60.9% |
| Operating income | $20.5 | $14.1 | $21.6 | $51.8 |
| Interest expense | $19.0 | $5.1 | $42.6 | $16.3 |
| Net income (loss) | $0.5 | $8.0 | ($17.8) | $96.6 |
| Adjusted EBITDA (non-GAAP) | $74.9 | $37.3 | $189.6 | $122.8 |
Q3 diluted EPS was $0.01 versus $0.22; nine-month diluted EPS was a loss of $0.52 versus earnings of $2.42. Adjusted EBITDA is a non-GAAP measure and excludes, among other items, amortization, stock compensation, acquisition costs, and acquired-inventory step-up expense.
Cash, liquidity, and debt
- Cash and cash equivalents were $134.1 at September 30, 2022, down from $186.4 at December 31, 2021. Current assets were $405.2 and current liabilities $414.5.
- Nine-month operating cash flow was $57.9, versus $67.4 a year earlier. Investing cash outflow was $572.8, principally the BDSI acquisition; financing cash inflow was $462.5, primarily reflecting the new term loan.
- Outstanding principal was $600.0 on the secured term loan and $143.8 on the 2.625% convertible notes due 2026. The term loan bears variable interest; its rate was 9.8% at quarter-end, with $100.0 of principal due during its first year and the balance amortizing over the remaining three years.
- Management stated that cash, together with expected operating cash inflows, should fund operating expenses, debt service, and capital expenditures for at least one year from issuance of the financial statements. This is a forward-looking estimate, not a guarantee.
Material changes and drivers
- Revenue rose 61% in Q3 and 34% for the nine-month period, substantially reflecting BDSI products included from March 22, 2022. Acquired products contributed $94.1 of nine-month revenue, including $84.4 from Belbuca.
- Legacy-product trends were mixed: Q3 Xtampza ER revenue increased $8.9, while Nucynta revenue declined $4.4. For the nine months, Xtampza increased $5.1 and Nucynta declined $14.4. Management cited pricing and gross-to-net changes, returns estimates, and lower sales volumes among the drivers.
- Reported gross margin declined, primarily due to higher intangible amortization following BDSI and $23.8 of nine-month cost from acquired-inventory fair-value step-up. Amortization was $94.0 for the nine months, versus $50.4.
- Nine-month SG&A rose to $134.2 from $92.4, including $31.2 of acquisition-related expenses. Interest expense increased with the BDSI-related borrowing. R&D ceased after Q2 as the company redirected its focus to commercial products.
- The prior-year nine-month result included a $62.6 deferred tax benefit from release of a valuation allowance, making the year-over-year net-income comparison less representative of underlying operations.
Outlook, risks, and unusual items
- Management expected acquisition-related expenses to decrease significantly and synergies to appear in the remainder of 2022. It also expected the acquired-inventory step-up to affect results until that inventory was sold, estimated within 12–18 months after acquisition. No specific revenue or earnings guidance was provided in the filing text.
- Management said COVID-related weakness in pain-patient office visits continued to affect demand. Other cited risks include product acceptance and reimbursement, generic competition, opioid regulation, supply-chain and single/limited-source supplier dependence, and concentration among wholesale distributors; three distributors accounted for more than 90% of shipments.
- The company faces ongoing patent disputes involving Xtampza ER and Belbuca. It stated that it could not assess the likelihood or estimate potential losses for certain litigation. The BDSI acquisition purchase-price allocation remained preliminary.
- The company settled 27 opioid-related government and public-entity lawsuits for up to $2.75, paid the settlement amounts, and reported dismissal of the cases. It also reported ongoing state investigations; a Massachusetts matter had been resolved through an assurance of discontinuance and a $0.185 payment.
- The company repurchased $6.4 of shares in Q3. Its repurchase program had $45.7 remaining at September 30; it reported an additional $3.6 of repurchases in October.
Most important facts for investors to verify
- Whether BDSI products sustain revenue and deliver the expected integration savings and synergies.
- Whether operating cash flow can support high variable-rate debt service and scheduled term-loan amortization.
- How gross-to-net deductions, product returns, and receivable collections develop, given the significant accrued rebates, returns, and discounts balance.
- Developments in patent litigation, especially Belbuca generic challenges and Xtampza ER disputes, and any resulting commercial or financial impact.
- Whether demand, reimbursement, product supply, and wholesaler relationships remain sufficient to support management’s liquidity outlook.