Collegium Pharmaceutical, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. The unaudited financial statements are for a commercial-stage specialty pharmaceutical company whose lead product, Xtampza ER, launched in June 2016. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Net product revenue | $11.950 | $0.408 | $17.682 | $0.408 |
| Cost of product revenue | $0.553 | $0.029 | $1.501 | $0.029 |
| Gross profit / margin | $11.397 / 95.4% | $0.379 / 92.9% | $16.181 / 91.5% | $0.379 / 92.9% |
| Research and development | $2.069 | $3.254 | $6.378 | $11.617 |
| Selling, general and administrative | $22.758 | $23.567 | $67.667 | $55.266 |
| Operating loss | $(13.430) | $(26.442) | $(57.864) | $(66.504) |
| Net loss | $(13.263) | $(26.444) | $(57.462) | $(66.617) |
| Loss per share, basic and diluted | $(0.45) | $(1.13) | $(1.95) | $(2.85) |
Gross profit and margin are calculated from reported product revenue less cost of product revenue; they are not separately presented as such by the company. Q3 2017 revenue included a one-time $4.377 million increase from changing to sell-in revenue recognition, including recognition of shipments from prior periods. The gross margin comparison is therefore affected by that change.
- Cash and liquidity: Cash and cash equivalents were $107.611 million at September 30, down from $153.225 million at December 31, 2016. Current assets were $118.896 million and current liabilities $26.396 million, implying working capital of approximately $92.5 million.
- Cash flow, nine months: Operating activities used $53.722 million, compared with $51.766 million in 2016; investing activities used $0.818 million, compared with $2.636 million; financing activities provided $8.926 million, compared with $49.733 million. Cash declined by $45.614 million during the period.
- Debt: Term-loan payable was $2.146 million, all classified as current, at quarter-end; the company repaid $2.0 million during the nine-month period. No long-term term loan was reported at September 30.
- Equity and shares: Shareholders’ equity was $96.269 million, versus $134.908 million at year-end 2016. The company reported 30.765 million shares outstanding at September 30 and 32,562,277 shares outstanding as of October 31.
Material changes versus the prior comparable period
- Revenue rose sharply as Xtampza sales grew following its 2016 launch; Q3 reported revenue also benefited from the $4.377 million recognition change. The filing attributes the quarterly revenue increase primarily to higher sold-through units and the move to sell-in accounting.
- For the first nine months, R&D expense fell $5.239 million, mainly due to completed clinical trials, lower Xtampza manufacturing costs recorded as R&D in the earlier period, and reduced consulting costs.
- Nine-month SG&A expense increased $12.401 million, primarily from higher salaries, benefits and stock-based compensation as headcount increased from 201 to 235, and higher legal expense related to litigation. Lower post-marketing requirement costs partly offset the increase.
- Nine-month net loss narrowed to $57.462 million from $66.617 million, while operating cash use increased modestly. Financing cash inflow was substantially lower than in 2016, when public offering proceeds were higher.
Outlook, commentary and risks
- Management said existing cash, expected Xtampza cash inflows and ATM proceeds raised through October 2017 were expected to fund operating expenses, debt service and capital spending into mid-2019. This is a forward-looking estimate based on assumptions; the company cautioned that it could use cash sooner and may need additional financing.
- In the nine months ended September 30, the company sold 1,148,466 shares under its at-the-market offering for net proceeds of $11.455 million. In October, it sold a further 1,793,290 shares for net proceeds of $19.646 million. These issuances dilute existing shareholders.
- The company expected to continue significant losses and commercialization spending. It had an accumulated deficit of $280.646 million and stated it may never achieve profitability.
- Xtampza faces market acceptance, competition, reimbursement and opioid-policy risks, as well as controlled-substance supply, manufacturing, post-marketing and regulatory requirements. Revenue estimation depends on judgments including returns, rebates and discounts.
- Purdue Pharma continued patent litigation seeking monetary relief and injunctions against Xtampza sales. The company said it could not assess the likelihood or quantify any potential loss. A further Purdue suit filed in October 2017 in response to Collegium’s supplemental NDA could potentially affect FDA approval of the proposed label change; the filing said whether it would trigger a stay was unclear.
- After quarter-end, in November 2017, the FDA approved Xtampza’s supplemental NDA. The updated label includes comparative pharmacokinetic data, results from an oral human abuse-potential study and an oral abuse-deterrent claim.
- Collegium expected to launch licensed product Onsolis in mid-2018, subject to FDA approval of a manufacturing-transfer supplement. Potential milestones of up to $21 million and upper-teens royalties on U.S. net sales were disclosed; none had been triggered at quarter-end.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level, and no material change in internal control over financial reporting occurred during the quarter.
Most important facts for investors to verify
- How much of Xtampza revenue reflects ongoing customer demand versus the one-time sell-in accounting transition, and how estimates of returns and rebates develop.
- Whether the company’s projected cash runway into mid-2019 holds as commercial spending, revenue and working-capital needs evolve, and whether further equity financing is required.
- The status and potential consequences of Purdue’s patent cases, including any effect on Xtampza sales or the supplemental label approval.
- Xtampza’s prescription growth, reimbursement and market acceptance, and the company’s ability to meet manufacturing, controlled-substance and post-marketing requirements.
- Whether Onsolis receives the required FDA approval and launches on the expected timeline, including the associated costs and contingent payments.