Collegium Pharmaceutical, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited. Amounts below are in millions of dollars unless stated otherwise.
Business context
Collegium is a specialty pharmaceutical company developing and commercializing abuse-deterrent medicines using its DETERx technology. Its first commercial product, Xtampza ER, launched in June 2016. The company also holds U.S. rights to Onsolis and is preparing for a potential launch, subject to FDA approval, in the first half of 2018.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Net product revenue | $2.172 | $0 |
| Cost of product revenue | $0.371 | $0 |
| Gross profit / margin | $1.801 / approximately 83% | Not applicable |
| Research and development expense | $2.130 | $4.062 |
| Selling, general and administrative expense | $22.847 | $11.525 |
| Operating loss | $(23.176) | $(15.587) |
| Net loss | $(23.078) | $(15.653) |
| Basic and diluted loss per share | $(0.79) | $(0.68) |
| Cash used in operating activities | $(23.688) | $(11.516) |
| Cash and cash equivalents, March 31 | $129.558 | — |
At March 31, cash and cash equivalents were $129.6 million, down $23.7 million from year-end 2016. Current assets were $136.5 million and current liabilities $24.5 million. Total term-loan debt was $3.480 million, including $2.556 million due within one year. Shareholders’ equity was $114.4 million; accumulated deficit was $246.3 million. The company reported no off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Revenue of $2.2 million reflects Xtampza sales after its 2016 launch; Q1 2016 had no product revenue.
- Net loss widened by $7.4 million. SG&A rose $11.3 million, primarily from higher staffing and compensation, commercial launch costs, and legal fees.
- R&D fell $1.9 million, mainly due to completion of clinical trials and lower manufacturing and consulting costs.
- Operating cash use increased $12.2 million. Q1 2016 financing included $51.2 million of net public-offering proceeds; Q1 2017 financing provided only $0.05 million.
Outlook, risks and unusual items
- Management expects continued losses and higher operating cash use as it commercializes Xtampza and funds development. It believes existing cash, together with expected Xtampza cash inflows, will fund operating expenses, debt service and capital expenditures into 2019; this estimate depends on assumptions and may prove inaccurate.
- The company established a $60 million at-the-market equity facility in March 2017 but had sold no shares under it by quarter-end.
- Xtampza commercialization depends on market acceptance, reimbursement, manufacturing and regulatory compliance. The company cited customer concentration: three wholesalers accounted for 35%, 28% and 27% of product shipments in 2016.
- Purdue Pharma continues patent litigation over Xtampza and seeks monetary relief and an injunction. Collegium disputes the claims and reported that it could not estimate the likelihood or range of potential loss. Purdue filed another patent suit in April 2017.
- Onsolis may require up to $21 million in milestone payments, including $4 million upon first U.S. commercial sale, and royalties in the upper teens on U.S. net sales. No milestone or royalty liability had been recognized at quarter-end. The expected launch is conditional on FDA approval of a manufacturing-transfer supplement.
- Q1 included a $0.093 million excess-inventory charge in cost of product revenue. A newly issued patent extended Onsolis patent protection through July 2027, and the company revised the intangible asset’s useful life from 3.7 to 11.2 years.
- Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Xtampza revenue, prescribing and payer coverage grow enough to support the company’s cash-runway estimate into 2019.
- Current cash burn, product gross margin, inventory quality and the timing and terms of any ATM share sales or other financing.
- Developments and potential financial or commercial impact of Purdue litigation, including the April 2017 action.
- FDA progress and manufacturing-transfer requirements for Onsolis, along with the associated milestones and royalties.
- Exposure to concentrated wholesale distributors and reliance on third-party manufacturers and controlled-substance suppliers.