Collegium Pharmaceutical, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; filed August 5, 2020. Dollar amounts below are in millions unless noted.
Business context
Collegium is a specialty pharmaceutical company focused on pain management. Its marketed products are Xtampza ER and Nucynta IR/ER. On February 13, 2020, it completed a $375.0 million asset acquisition of additional Nucynta rights from Assertio. The acquisition ended royalties payable to Assertio; Collegium now pays Grunenthal royalties of 14% of Nucynta net sales.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 |
|---|---|---|---|---|
| Net product revenue | $78.1 | $75.0 | $154.6 | $149.6 |
| Gross profit | $48.4 | $26.4 | $87.4 | $51.7 |
| Gross margin | 61.9% | 35.2% | 56.5% | 34.6% |
| Operating income (loss) | $16.5 | ($5.0) | $21.6 | ($15.0) |
| Net income (loss) | $8.1 | ($4.7) | $8.5 | ($14.4) |
| Diluted EPS | $0.23 | ($0.14) | $0.24 | ($0.43) |
- Q2 revenue rose 4.0% year over year; Xtampza ER revenue increased to $33.6 million from $26.0 million, while Nucynta revenue declined to $44.5 million from $49.0 million. For H1, Xtampza ER revenue was $65.1 million and Nucynta revenue was $89.5 million.
- Q2 cost of product revenues excluding amortization fell to $12.9 million from $45.0 million, largely because $31.9 million of Nucynta royalties had been recognized in Q2 2019. Higher Nucynta intangible amortization—$16.8 million versus $3.7 million—partly offset that benefit.
- Q2 operating expenses were $31.8 million, broadly flat year over year. Q2 interest expense increased to $8.3 million from $0.2 million, primarily reflecting acquisition-related borrowing. H1 interest expense was $13.1 million versus $0.5 million.
- For H1, operating cash flow was $37.2 million versus $6.1 million. Investing cash use was $369.9 million, primarily for the Nucynta acquisition; financing provided $310.9 million, mainly from the new term loan and convertible notes. Cash, cash equivalents and restricted cash ended at $148.2 million, including $145.7 million of unrestricted cash.
- At June 30, current assets were $250.8 million and current liabilities $252.1 million. Accrued rebates, returns and discounts were $171.1 million.
- Debt carrying values were $180.9 million for term notes and $96.0 million for convertible notes, totaling approximately $277.0 million. The term loan had $200.0 million original principal, a LIBOR floor of 2.0% plus 7.5%, quarterly principal payments and maturity in 2024; it is secured by substantially all material assets and includes a $200.0 million annual net-sales covenant. Collegium reported compliance with covenants at June 30. The $143.75 million convertible notes bear 2.625% interest and mature in 2026.
Changes, outlook and risks
- The Nucynta acquisition substantially increased intangible assets and debt. The acquired rights are being amortized over an estimated remaining period of approximately 5.5 years; H1 amortization was $27.1 million versus $7.4 million a year earlier.
- Management said COVID-19 reduced new patient starts and limited sales representatives’ access to healthcare providers, while reducing certain travel, marketing and conference costs. The company expected disruption to continue through 2020 and noted uncertainty about when it would ease. No numerical revenue or earnings guidance is provided.
- Management stated cash and expected product cash inflows should fund operating expenses, debt service and capital needs for the foreseeable future under its current plan. This is subject to revenue, COVID-19, debt service and capital-market risks. The company has incurred net losses in every annual reporting period since inception despite reporting Q2 and H1 2020 profits.
- Key risks include opioid-related litigation and government investigations, patent disputes with Purdue and Teva, product commercialization and reimbursement, opioid regulation and competition, controlled-substance supply constraints, dependence on third-party manufacturers, customer concentration, and debt covenants. Purdue litigation and the Teva cases were stayed or otherwise pending; the company said it could not estimate the likelihood or amount of potential losses. It is cooperating with opioid-related inquiries from four state attorneys general.
- Three wholesale distributors accounted for 35%, 30% and 30% of product shipments, respectively, during H1. The filing describes this concentration as a risk.
Important facts for investors to verify
- Whether Xtampza ER growth can offset declining Nucynta sales and COVID-related limits on promotion and patient starts.
- Whether the acquisition’s royalty savings and future product cash flows can support scheduled debt service and covenant compliance.
- How the large rebate and discount accruals, returns estimates and distributor concentration affect reported revenue and cash collection.
- Developments in Purdue and Teva patent cases, opioid-related claims and investigations, including any material change to estimated contingencies.
- Whether manufacturing, active ingredient supply, reimbursement and regulatory requirements remain sufficient to meet demand and sustain commercialization.