Collegium Pharmaceutical, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 7, 2020. Unless stated otherwise, financial amounts below are in millions of dollars. Collegium markets Xtampza ER and the Nucynta IR and ER products for pain management.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Net product revenue | $76.5 | $74.5 |
| Gross profit / gross margin | $39.0 / 51.0% | $25.4 / 34.0% |
| Operating income (loss) / margin | $5.1 / 6.6% | $(10.0) / (13.4)% |
| Net income (loss) | $0.45 | $(9.7) |
| Basic and diluted EPS | $0.01 | $(0.29) |
| Cash used in operating activities | $(6.7) | $(8.6) |
| Cash and cash equivalents at period end | $116.2 | $170.0 at Dec. 31, 2019 |
Q1 2020 cash used in investing activities was $367.6 million, primarily reflecting the Nucynta acquisition; financing activities provided $323.1 million. Cash, cash equivalents and restricted cash totaled $118.8 million at quarter-end, including $2.6 million restricted cash. Current assets were $223.7 million versus current liabilities of $244.4 million.
At March 31, 2020, term notes had $200.0 million principal outstanding ($192.6 million net carrying value) and convertible notes had $143.75 million principal outstanding ($94.4 million net carrying value). The term loan bears interest at three-month LIBOR, subject to a 2.0% floor, plus 7.5%, and is secured by substantially all material assets. The 2.625% convertible notes mature in 2026. Management reported compliance with term-loan covenants and said available cash and expected product cash flows should fund operations, debt service and capital expenditures for the foreseeable future.
Material changes versus the prior-year quarter
- Revenue increased 2.7%. Xtampza ER revenue rose to $31.5 million from $25.1 million, attributed to higher volume and price. Nucynta revenue fell to $45.0 million from $49.4 million, primarily due to lower volume, partly offset by price.
- Gross profit improved by $13.6 million. Product costs excluding amortization declined to $27.2 million from $45.5 million, mainly because Q1 2019 included $32.1 million of Assertio sales-based royalties. The Assertio royalty obligation ceased when the acquisition closed; $14.2 million of royalty expense was recognized in Q1 2020 before closing.
- Intangible amortization increased to $10.3 million from $3.7 million following the acquisition. Operating expenses declined to $33.9 million from $35.3 million.
- Interest expense rose to $4.8 million from $0.2 million due principally to the new term and convertible debt. The company moved from a net loss to modest net income.
Acquisition, outlook and principal risks
On February 13, 2020, Collegium closed its $375 million purchase of Nucynta-related assets and rights from Assertio. Total acquisition consideration was recorded at $373.1 million after adjustments and transaction costs, with $367.1 million allocated to the existing intangible asset and $6.0 million to inventory. Collegium will pay Grunenthal royalties of 14% of Nucynta net sales. The company financed the transaction in part with a $200 million secured term loan and $143.75 million of convertible notes.
Management provided no numeric revenue or earnings guidance. It expects continued commercialization costs and noted that COVID-19 could reduce revenue as fewer new patients begin therapy, while reducing some expenses; post-marketing trials were delayed for 2020. The company described the disruption as potentially temporary but emphasized uncertainty. Remote sales work and limits on healthcare-provider access may also constrain commercialization.
Key risks include opioid-related and patent litigation, government investigations, regulatory and reimbursement changes, competition and generic entry, customer concentration, and reliance on third-party manufacturers and active-ingredient suppliers. Three wholesale distributors accounted for 35%, 31% and 30% of product shipments, respectively, in the quarter. Purdue and Teva cases and opioid-related claims remain unresolved; the company said it could not estimate the likelihood or range of potential losses. The Pharmakon loan includes a $200 million annual net-sales covenant, alongside other restrictive covenants. Management reported disclosure controls were effective as of March 31, 2020.
Important facts for investors to verify
- Whether COVID-19 effects on prescribing, sales access, supply chains and delayed post-marketing trials persist or intensify.
- Whether Xtampza growth can offset declining Nucynta sales, and how the 14% Nucynta royalty affects future profitability.
- Debt-service capacity, term-loan covenant compliance and the implications of secured debt and potential convertible-note dilution.
- Developments and potential financial exposure in Purdue, Teva and opioid-related litigation or investigations; potential losses are not estimable from the filing.
- Whether distributor concentration and reliance on single-source suppliers create material sales or manufacturing interruptions.