Business context and reporting period
Collegium Pharmaceutical, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2023. The company markets Xtampza ER, Nucynta ER/IR, Belbuca and Symproic in the United States. Belbuca and Symproic were acquired with BDSI in March 2022, affecting year-over-year comparisons.
Financial performance and position
Amounts are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net product revenue | $135.5 | $123.5 | $280.3 | $207.3 |
| Gross profit | $73.8 | $52.4 | $151.2 | $100.9 |
| Gross margin | 54.5% | 42.4% | 54.0% | 48.7% |
| Operating income | $35.6 | $11.1 | $60.3 | $1.1 |
| Net income (loss) | $13.0 | ($5.2) | ($4.4) | ($18.3) |
| Net income (loss) per diluted share | $0.34 | ($0.15) | ($0.13) | ($0.54) |
| Adjusted EBITDA (non-GAAP) | $85.8 | $71.2 | $173.4 | $114.7 |
- Q2 revenue increased 9.7% year over year. Growth reflected higher gross prices and lower rebate-related deductions, partly offset by lower sales volumes and higher return-related deductions. Six-month revenue growth also reflects a full six months of BDSI product sales in 2023 versus approximately four months in 2022.
- Q2 gross margin improved as product costs excluding amortization fell, partly because the 2022 period included acquisition-related inventory step-up costs. Six-month margins also benefited from revenue growth, but amortization rose to $74.9 million from $56.4 million.
- Operating cash flow was $127.4 million in the first half, versus $15.1 million in 2022. Investing cash outflow was $41.9 million, mainly marketable-security purchases; financing provided $23.1 million. Cash, cash equivalents and restricted cash ended at $284.8 million.
- At June 30, cash and cash equivalents were $283.7 million and marketable securities were $41.7 million, or $325.5 million combined. Current assets were $537.3 million and current liabilities $435.1 million.
- Term-loan principal was $504.2 million; convertible-note principal was $267.9 million ($26.4 million due 2026 and $241.5 million due 2029). Total principal debt was approximately $772.0 million. The term loan carried a 12.9% interest rate at quarter-end and transitioned from LIBOR to SOFR effective July 1, 2023. Management estimates a 1% rate change would affect annual interest expense by about $5.0 million.
Material changes versus prior comparable periods
- Q2 moved from a net loss to net income, with operating income rising to $35.6 million. For the first half, the net loss narrowed, but results remained slightly negative.
- Six-month revenue increased $73.0 million, including $41.7 million from Belbuca and $3.3 million from Symproic, substantially reflecting the longer post-acquisition comparison period. Xtampza ER revenue rose $24.4 million and Nucynta products rose $4.1 million.
- First-half interest expense increased to $43.3 million from $23.6 million, reflecting the acquisition-related term loan, higher variable rates and the 2029 notes. Interest income also increased to $6.8 million from less than $0.1 million.
- The company recorded a $23.5 million first-quarter loss on extinguishment of debt following repurchase of $117.4 million principal of 2026 notes for approximately $140.1 million, while issuing $241.5 million principal of 2029 notes.
- First-half SG&A declined to $91.0 million from $95.8 million, largely due to lower acquisition expenses, offset by higher personnel, sales and marketing, and legal costs. R&D expense was zero, versus $4.0 million in the 2022 first half.
Outlook, risks and unusual items
- Management expects existing liquidity and product-sale cash inflows to fund operations, debt service and capital expenditures under its current plan for the foreseeable future; the filing also states liquidity is expected to cover at least one year from issuance of the financial statements. No numerical revenue or earnings guidance is provided.
- Management expects pandemic-era trends, including depressed pain-patient office visits and labor disruptions at pain offices, to persist in the near to medium term despite the end of the federal public health emergency in May 2023.
- Key risks include product commercialization and reimbursement, opioid regulation and litigation, generic competition, dependence on a limited number of manufacturers and suppliers, and concentration among wholesalers. Three wholesalers represented more than 90% of product shipments for the year ended June 30, 2023.
- Patent litigation remains ongoing, including Purdue litigation involving Xtampza ER and Nucynta and generic challenges to Belbuca. The company says it cannot estimate the likelihood or range of potential losses in certain cases. It is also cooperating with state opioid-related investigations; three new opioid lawsuits were filed in 2023 and had not yet been served at the time of the filing.
- Previously disclosed opioid litigation was settled for $2.75 million and paid. A separate Belbuca/Bunavail patent matter was resolved for an $8.5 million lump-sum payment in March 2023. The first-half results also include the debt-extinguishment loss and $8.5 million litigation settlement expense.
- The board authorized a $50 million accelerated share repurchase in July 2023, within the existing $100 million 2023 repurchase authorization. No shares had been repurchased under that program as of June 30.
Important facts for investors to verify
- Track product-level sales, prescription volumes and gross-to-net deductions, especially rebate and return estimates.
- Monitor term-loan repayment requirements, the high variable interest rate, covenant compliance and the impact of the SOFR transition.
- Assess the status and potential financial or commercial effects of patent disputes, opioid investigations and generic Belbuca challenges.
- Verify wholesaler concentration and continuity of manufacturing, active pharmaceutical ingredient supply and DEA quotas.
- Review the effects of the July accelerated repurchase on liquidity, debt-service capacity and share count.