Collegium Pharmaceutical, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Dollar amounts below are in millions unless noted. Collegium commercializes Xtampza ER and the Nucynta ER and IR products in the United States.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net product revenue | $72.9 | $70.2 | $222.5 | $207.0 |
| Gross profit / margin | $26.2 / 35.9% | $24.2 / 34.4% | $77.9 / 35.0% | $71.0 / 34.3% |
| Operating loss / margin | $(6.4) / (8.7)% | $(11.2) / (15.9)% | $(21.4) / (9.6)% | $(31.7) / (15.3)% |
| Net loss | $(6.1) | $(16.5) | $(20.5) | $(48.2) |
| Basic and diluted loss per share | $(0.18) | $(0.50) | $(0.62) | $(1.46) |
Q3 revenue rose 3.9% year over year; nine-month revenue increased 7.5%. Xtampza ER revenue grew to $26.5 million in Q3 and $77.6 million for the nine months, while Nucynta Products revenue fell to $46.5 million and $144.9 million, respectively. Management attributed Xtampza growth to higher volume and Nucynta declines primarily to lower volume, partly offset by price increases.
Gross margin percentages are calculated from reported net product revenue less cost of product revenue. Cost of product revenue includes Nucynta royalties and intangible-asset amortization; changes in the Nucynta agreement affect comparability. Q3 selling, general and administrative expense declined $3.4 million year over year, while research and development expense increased $0.6 million.
Cash, debt and liquidity
- Cash and cash equivalents were $153.8 million at September 30, 2019, up from $146.6 million at December 31, 2018. Current assets were $249.8 million and current liabilities were $201.5 million, including $165.3 million accrued for rebates, returns and discounts.
- Term-loan principal was $11.5 million, of which $2.9 million was current. Scheduled principal repayments are approximately $3.8 million annually in 2020, 2021 and 2022; outstanding amounts are due in December 2022. The loan bears interest at prime plus 0.75%.
- For the nine months, operating cash flow was $12.1 million, investing cash flow was $(5.5) million, financing cash flow was $0.6 million and cash increased by $7.2 million. Operating cash flow was substantially below the prior-year $127.1 million. The company attributed the comparison largely to changes in Nucynta royalty payment terms and cash-flow classification, lower noncash amortization and interest, and working-capital changes; the figures are not a direct measure of an equivalent change in operating performance.
- Management said cash on hand and expected product-sale inflows should fund operating expenses, debt service and capital expenditures for the foreseeable future. The company nevertheless expects near-term net losses and may need additional capital depending on results and other needs.
Material changes, outlook and significant risks
- The November 2018 Nucynta agreement amendment eliminated guaranteed minimum royalties for 2019–2021 and replaced them with sales-based royalties. For 2019–2021, royalty rates vary by annual net-sales tiers. Assertio may terminate the agreement if annual Nucynta net sales are below $180 million in a 12-month period through January 1, 2022; the company cannot terminate before December 31, 2021. The amendment sharply reduced reported Nucynta-related interest expense compared with 2018.
- Non-GAAP adjusted income was $1.7 million for Q3 and $3.1 million for the nine months, versus adjusted losses of $8.3 million and $24.8 million in the comparable periods. The company’s measure excludes stock-based compensation and specified Nucynta amortization, noncash interest and minimum-royalty items; it is not a GAAP measure.
- No quantitative revenue or earnings guidance was provided. Collegium said it would continue to incur significant commercialization expenses and expected net losses in the near future. It promoted Xtampza ER to approximately 11,000 health care professionals using a sales organization of about 150 representatives and managers, also used to promote Nucynta.
- Key legal contingencies include Purdue patent litigation involving Xtampza ER and Nucynta, Teva litigation over proposed generic oxycodone products, opioid-related lawsuits and state investigations. Purdue’s bankruptcy filing led to stays in relevant proceedings; the court in the Nucynta case had ruled in Collegium’s favor on patent exhaustion to the extent sales fell within a covenant, but ordered further discovery on product-title transfer. The Teva cases were stayed by agreement. The company said it could not assess the likelihood or estimate a potential loss for the principal matters.
- Other material risks include opioid-related regulatory and market changes, DEA quota limits and controlled-substance compliance, reliance on single or limited suppliers and contract manufacturers, customer concentration, reimbursement and competitive pressures, and the possibility of additional financing needs. Three wholesale distributors accounted for 33%, 31% and 30% of product shipments, respectively, during the nine months.
- The company adopted the new lease standard in 2019, recognizing operating lease assets of $9.2 million and liabilities of $10.4 million at quarter-end, primarily related to its headquarters and other arrangements. It reported disclosure controls effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Xtampza ER growth can offset declining Nucynta sales, and whether Nucynta sales remain above the agreement’s termination thresholds.
- The assumptions behind the $165.3 million accrued rebates, returns and discounts balance and their effects on reported net revenue and cash conversion.
- Cash generation, capital spending and liquidity against the company’s forecast, including the timing of scheduled loan repayments and investment in the dedicated manufacturing suite.
- Developments and potential financial impact of Purdue and Teva patent cases, opioid-related litigation and government investigations; the filing provides no clear loss estimate for the principal matters.
- Supply continuity, DEA quota availability and the impact of opioid policy, reimbursement changes and generic competition on demand and margins.