Collegium Pharmaceutical, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Financial amounts are in millions of dollars unless otherwise noted. Collegium commercializes Xtampza ER and the Nucynta products in the United States.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net product revenue | $75.0 | $73.1 | $149.6 | $136.8 |
| Cost of product revenue | $48.7 | $46.8 | $97.8 | $89.9 |
| Operating loss | $(5.0) | $(7.3) | $(15.0) | $(20.5) |
| Net loss | $(4.7) | $(13.1) | $(14.4) | $(31.7) |
| Loss per share, diluted | $(0.14) | $(0.40) | $(0.43) | $(0.96) |
- Revenue increased 2.7% in Q2 and 9.3% for the first half. Xtampza ER revenue rose to $26.0 million in Q2 from $18.1 million, and to $51.2 million for the first half from $33.9 million. Nucynta revenue declined to $49.0 million in Q2 from $54.9 million and to $98.4 million for the first half from $102.9 million.
- Management attributed Xtampza growth to higher sales volume and Nucynta declines primarily to lower volume, partly offset by higher pricing. Operating losses narrowed; lower interest expense also contributed to the smaller net loss, following elimination of Nucynta minimum royalties in the 2018 amendment.
- Calculated gross margin was approximately 35.2% in Q2 2019 versus 35.9% in Q2 2018, and 34.6% versus 34.3% for the respective six-month periods. Higher Nucynta royalty expense, recognized as incurred under the amended agreement, increased product costs.
- Non-GAAP adjusted income was $3.1 million in Q2 and $1.4 million for the first half, versus adjusted losses of $4.9 million and $16.6 million in the comparable 2018 periods. This company-defined measure excludes specified items and is not a substitute for GAAP results.
Cash, liquidity and debt
- Cash and cash equivalents were $148.7 million at June 30, 2019, versus $146.6 million at December 31, 2018. First-half cash provided by operations was $6.1 million, investing cash use was $4.2 million, and financing cash provided was $0.2 million; cash increased $2.1 million.
- Operating cash flow was down from $85.3 million in the first half of 2018. Management cited changes in working capital and the amended Nucynta royalty structure, which moved conditional royalty payments to operating cash flows rather than the financing classification used for prior guaranteed minimum payments.
- Term-loan principal was $11.5 million, with monthly principal and interest installments scheduled to begin in January 2020 and final payment due in December 2022. The company reported a minimum liquidity covenant of 1.5 to 1.0. Operating lease liabilities totaled $10.5 million following adoption of the lease accounting standard.
- Current assets were $244.6 million and current liabilities were $196.3 million. Accrued rebates, returns and discounts were $158.3 million. Management said existing cash and expected product-sale inflows should fund operations, debt service and capital expenditure requirements for the foreseeable future, while noting forecasts are uncertain.
Outlook, risks and unusual items
- No quantified revenue, earnings or other financial guidance was provided. Management expects continued significant commercialization spending and ongoing net losses in the near term. It promoted Xtampza ER to approximately 11,000 healthcare professionals with about 150 sales representatives and managers, and used the same sales organization for Nucynta.
- Key risks include opioid-market and regulatory changes, reimbursement and demand, controlled-substance supply and DEA quotas, reliance on third-party manufacturers and distributors, and customer concentration. Three wholesale distributors each accounted for approximately 31%–32% of product shipments in the first half.
- Patent litigation remains significant. Purdue’s Xtampza ER cases continued, with three patents remaining in dispute; the company said it could not estimate the likelihood or range of loss. In the Nucynta case, the court found patent exhaustion could support Collegium’s defense for covered sales but ordered further discovery on title transfer. Teva litigation over Xtampza ER patents also continued.
- The company faced opioid-related lawsuits and state investigations. Several matters were dismissed or effectively stayed, but other claims remained pending; Collegium said it could not estimate potential losses. It was cooperating with investigative demands from the attorneys general of Washington, New Hampshire and Massachusetts.
- The November 2018 Nucynta agreement amendment eliminated guaranteed minimum royalties for 2019–2021, replacing them with sales-based royalties. Assertio may terminate if specified annual sales thresholds are not met. Collegium also issued Assertio a warrant for 1,041,667 shares at $19.20 per share, expiring in November 2022.
- Management reported disclosure controls were effective as of June 30, 2019 and no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- Whether Xtampza ER growth can offset continued Nucynta revenue declines and support sustainable profitability.
- The cash and working-capital impact of rebates, returns, discounts and the revised Nucynta royalty terms.
- Progress and potential outcomes of Purdue and Teva patent litigation, opioid-related lawsuits and government investigations.
- Ability to maintain supply, meet DEA requirements and manage concentration among wholesale distributors.
- Liquidity outlook against continued losses, lease commitments and debt repayments beginning in 2020.