Collegium Pharmaceutical, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited figures below are in millions of dollars unless stated otherwise.
Business context
Collegium sells Xtampza ER and the Nucynta products. On March 22, 2022, it acquired BDSI, adding Belbuca, Symproic and Elyxyb. The company said it had shifted its focus to commercial products and incurred no R&D expense in Q2.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net product revenue | $123.5 | $82.9 | $207.3 | $170.7 |
| Gross profit | $52.4 | $50.2 | $100.9 | $105.8 |
| Gross margin | 42.4% | 60.6% | 48.7% | 62.0% |
| Operating income | $11.1 | $16.4 | $1.1 | $37.6 |
| Net income (loss) | $(5.2) | $72.8 | $(18.3) | $88.5 |
| Operating cash flow | — | $15.1 | $50.1 |
Q2 revenue increased 49% year over year, mainly from BDSI products, including $42.3 million of Belbuca revenue. Six-month revenue rose 21%; BDSI products contributed $50.4 million after closing. These additions were partly offset by declines in Nucynta and Xtampza sales over the six-month period. The lower gross margin reflected acquired-product costs and amortization, including a $12.6 million inventory fair-value step-up expense in Q2.
Q2 net loss compared with prior-year net income that included a $61.9 million tax benefit from releasing most of the valuation allowance. Six-month 2022 results included $30.7 million of acquisition-related expenses and $13.2 million of inventory step-up expense. Adjusted EBITDA, a company-defined non-GAAP measure, was $71.2 million for Q2 and $114.7 million for the six months.
At June 30, cash and cash equivalents were $122.7 million (plus $2.5 million restricted cash); current assets were $409.8 million and current liabilities $415.1 million. Total assets were $1.246 billion and total liabilities $1.048 billion. Six-month investing cash outflow was $572.6 million, primarily the BDSI acquisition; financing cash inflow was $493.8 million. Cash, cash equivalents and restricted cash declined $63.7 million over the six months.
Term-loan principal was $625.0 million and convertible-note principal was $143.8 million at quarter-end. The secured term loan bears variable interest; its rate was 9.8% at June 30, and it requires $100 million of principal repayment in its first year. The company reported $17.8 million of Q2 interest expense and estimated a $6.3 million annual interest-expense effect from a 1% rate change on the term loan.
Changes, outlook and risks
- The $669.4 million BDSI acquisition was financed in part with a new $650 million term loan. Preliminary allocation included $435 million of acquired intangible assets and $130.1 million of goodwill; the purchase-price allocation remained subject to finalization.
- Management expects integration synergies and acquisition expenses to decline significantly through the rest of 2022, while acquired-inventory step-up costs were expected to continue until that inventory was sold, no later than one year after acquisition. It also expected the enlarged portfolio to increase revenue scale, earnings and cash generation. These are expectations, not guarantees.
- Management said cash and expected product cash flows should fund operations, debt service and capital spending for at least one year from issuance of the statements. The filing provides no numerical revenue or earnings guidance.
- COVID-related weakness in pain-patient office visits may weigh on demand. Other key risks include product commercialization and reimbursement, opioid regulation, generic competition, manufacturing and API supply dependence, and concentration among wholesale distributors; three distributors represented more than 90% of product shipments.
- Product-return processing disruptions and disputed short-pay claims remain uncertain, although the company reported no material estimate adjustments in the quarter. Major patent disputes involving Xtampza and Belbuca continue; management said it could not estimate the likelihood or range of potential losses. The company settled 27 opioid-related lawsuits for up to $2.75 million, paid, and reported dismissal of the remaining related cases as of July 2022.
- The term loan is secured by substantially all company and material-subsidiary assets and includes restrictive covenants and default remedies. Variable-rate exposure and refinancing or debt-service capacity merit attention.
Most important facts for investors to verify
- Whether BDSI integration delivers the stated synergies and whether acquired-product revenue offsets declines in Nucynta and Xtampza.
- Cash generation, working-capital needs, scheduled term-loan repayments, interest-rate exposure and compliance with debt covenants.
- Final acquisition accounting, including intangible-asset values, goodwill, tax effects and remaining inventory step-up costs.
- Resolution of product-return claims and short-pay receivables, and developments in Purdue, Belbuca generic and other patent litigation.
- Product access and demand trends, including reimbursement, COVID-related effects, supply continuity and wholesaler concentration.