Collegium Pharmaceutical, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 4, 2023. Unaudited results. Dollar amounts below are in millions unless stated otherwise.
Business context
Collegium commercializes Xtampza ER, Nucynta ER and IR, Belbuca, and Symproic in the U.S. The portfolio expanded through its March 2022 acquisition of BioDelivery Sciences International (BDSI), which added Belbuca and Symproic. The prior-year quarter included only a partial quarter of BDSI product revenue.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net product revenue | $144.8 | $83.8 |
| Gross profit | $77.4 | $48.5 |
| Gross margin | 53.5% | 57.9% |
| Operating income (loss) | $24.6 | $(10.0) |
| Net loss | $(17.4) | $(13.1) |
| Net loss per diluted share | $(0.51) | $(0.39) |
| Cash from (used in) operating activities | $27.7 | $(25.3) |
| Cash and cash equivalents at period-end | $269.5 | $173.7 at Dec. 31, 2022 |
Revenue increased 72.9%, principally reflecting a full quarter of Belbuca and Symproic sales and higher Xtampza ER revenue. By product, revenue was Xtampza ER $47.9, Belbuca $44.2, Nucynta IR $27.9, Nucynta ER $21.1, and Symproic $3.7. The reported year-over-year comparison is affected by BDSI’s acquisition timing.
Gross margin declined as cost of product revenue and acquired-intangible amortization rose. Amortization was $37.5 versus $18.9, and the quarter included $10.2 of expense from the BDSI acquired-inventory fair-value step-up. Operating expenses totaled $52.8, including an $8.5 litigation settlement; they were $58.5 in the prior-year quarter, which included $27.2 of acquisition-related costs. Adjusted EBITDA, a non-GAAP measure, was $87.6 versus $43.5; adjusted net income was $51.7 versus $27.0. These non-GAAP measures exclude specified expenses and should not be treated as GAAP earnings or cash flow.
Operating cash flow improved to $27.7. The cash-flow statement shows working-capital contributions, including a $13.6 inventory reduction and lower accrued rebates, returns and discounts; cash flow should therefore be considered alongside these balance movements. Investing cash use was $0.2. Financing cash provided was $68.3, including net proceeds from the 2029 notes, offset in part by convertible-note repurchases and term-loan repayment.
At March 31, current assets were $498.3 and current liabilities $412.7 (current ratio approximately 1.21). Accrued rebates, returns and discounts were $200.9. Principal debt outstanding was $550.0 under the secured term loan, $26.4 under 2026 convertible notes, and $241.5 under 2029 convertible notes. The term loan has $183.3 of principal due within 12 months and is secured by substantially all company and material domestic-subsidiary assets. The filing gives inconsistent term-loan interest rates: 12.3% in the notes and 13.9% in MD&A, both as of March 31, 2023; investors should verify the applicable rate. Management reported covenant compliance.
Material changes and unusual items
- Revenue rose by $61.0, including $44.2 from BDSI products (largely reflecting the full-quarter comparison) and $16.4 from Xtampza ER.
- Interest expense increased to $21.4 from $5.8, principally due to higher borrowing and rates on the variable-rate term loan. Interest income increased to $2.7.
- The February 2023 issuance of $241.5 principal amount of 2029 convertible notes funded a concurrent repurchase of $117.4 principal amount of 2026 notes for $140.1 cash, including accrued interest. The company recorded a $23.5 debt-extinguishment loss.
- The board authorized a $100.0 share-repurchase program through December 31, 2023; no program repurchases had been made as of quarter-end.
Outlook, risks and contingencies
Management said quarter-end cash and expected product cash inflows should fund operating needs, debt service and capital expenditures under its current business plan for at least one year from issuance of the financial statements, and described funding as adequate for the foreseeable future. No quantified revenue or earnings guidance was provided. Management expects pandemic-related effects—including depressed pain-patient office visits and disruptions to physician-office access—to persist in the near to medium term.
Key risks include commercialization, reimbursement and pricing pressure; opioid regulation, REMS and controlled-substance requirements; generic competition; dependence on third-party manufacturers and limited API suppliers; and concentration among wholesalers—three represented more than 90% of product shipments for the year ended March 31, 2023. The company also highlighted variable-rate debt exposure: a 1% rate change would alter future annual interest expense by approximately $5.5, based on quarter-end term-loan principal.
Patent litigation remains material. Purdue litigation concerning Xtampza ER continues, with the ’961 patent matter stayed pending appeal; the company cannot estimate the likelihood or amount of a potential loss. Belbuca generic patent disputes also continue. The filing reports three new opioid-related complaints filed in late March 2023; the company had not yet been served. The $2.75 opioid-litigation settlement covering 27 prior cases had been paid and those cases dismissed. In March 2023, BDSI settled Bunavail and Belbuca litigation with Aquestive for a one-time $8.5 payment. Chemo received an FDA complete response letter concerning its amended Belbuca ANDA in April 2023.
Management stated disclosure controls and procedures were effective as of March 31, 2023, with no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Reconcile the disclosed 12.3% and 13.9% term-loan interest rates and assess the effect of any LIBOR-to-SOFR transition.
- Review the $183.3 of term-loan principal due within 12 months against operating cash generation and product sales.
- Assess whether revenue growth and operating cash flow are sustainable after accounting for acquisition timing, inventory step-up costs, amortization, and working-capital movements.
- Monitor rebate, return and discount estimates, including the $200.9 accrued balance, and wholesaler concentration and payment behavior.
- Track outcomes and potential exposure from Xtampza ER and Belbuca patent matters, new opioid complaints, and ongoing state investigations.
- Evaluate the assumptions behind management’s liquidity outlook and the potential use of the $100.0 share-repurchase authorization.