Business context and reporting period
Collegium Pharmaceutical, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2016. The specialty pharmaceutical company develops and commercializes abuse-deterrent medicines using its DETERx technology. Xtampza ER, its first product, was FDA-approved in April 2016 and launched in June 2016. The company also licensed U.S. rights to Onsolis and was preparing for a potential launch in the second half of 2017, subject to FDA approval of a manufacturing-transfer supplement.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Net product revenue | $0.408 million | $0 | $0.408 million | $0 |
| Cost of product revenue | $0.029 million | $0 | $0.029 million | $0 |
| Research and development | $3.254 million | $3.358 million | $11.617 million | $6.444 million |
| Selling, general and administrative | $23.567 million | $5.907 million | $55.266 million | $11.027 million |
| Operating loss | $26.442 million | $9.265 million | $66.504 million | $17.471 million |
| Net loss | $26.444 million | $9.362 million | $66.617 million | $17.730 million |
| Basic and diluted loss per share | $1.13 | $0.46 | $2.85 | $0.94 |
Q3 product gross profit was approximately $0.379 million, or about 93% of net product revenue, based on reported revenue and product costs. Revenue recognition was based on customer sell-through, rather than shipment, because the company had limited sales history and uncertainty about returns.
For the nine months, operating cash outflow was $51.766 million, investing cash outflow was $2.636 million, and financing cash inflow was $49.733 million. Cash and cash equivalents were $91.028 million at September 30, 2016, down from $95.697 million at December 31, 2015. Total assets were $98.725 million and shareholders’ equity was $74.325 million. Term-loan debt totaled $4.813 million, including $2.667 million current and $2.146 million long-term.
Material changes versus prior comparable periods
- Xtampza launch generated $0.408 million in net product revenue in Q3 and year-to-date 2016; comparable 2015 periods had no product revenue.
- Nine-month net loss increased to $66.617 million from $17.730 million. SG&A rose by $44.3 million, primarily reflecting increased headcount and compensation, launch-related sales and marketing, FDA-required post-marketing studies, and commercialization support.
- Nine-month R&D increased by $5.2 million, mainly due to clinical-trial costs and higher staffing, partly offset by lower consulting costs.
- Cash used in operations rose to $51.766 million from $12.628 million, reflecting the higher loss, partly offset by working-capital changes.
- In January 2016, the company raised approximately $51.2 million net through a common-stock offering. Common shares outstanding were 23,588,985 at September 30, 2016, versus 20,739,351 at year-end 2015.
Guidance, outlook, risks and unusual items
- Management expected continued losses and higher commercialization, clinical-development, manufacturing, and public-company costs. It estimated that cash at September 30, expected Xtampza cash inflows, and proceeds from the October 2016 offering would fund operations, debt service, and capital spending into 2019. This estimate depends on assumptions, including sales and payer negotiations, and is not assured.
- In October 2016, after quarter-end, the company sold 5.0 million shares at $16 per share and reported approximately $74.8 million in net proceeds; proceeds could rise to approximately $86.1 million if the underwriters fully exercise their 750,000-share option.
- Management planned an Xtampza sales effort targeting approximately 11,500 physicians with about 120 representatives, plus a separate institutional-focused team. The company also announced an October submission to Health Canada for Xtampza and an FDA supplemental application for comparative pharmacokinetic data.
- Onsolis required a manufacturing transfer and FDA supplement; the company paid a $2.5 million upfront license fee, committed to reimburse up to $2.0 million of transfer expenses, may owe up to $21 million in milestones, and owes royalties in the upper teens on U.S. net sales.
- Purdue Pharma continued to assert infringement of two patents related to Xtampza. Three other asserted Orange Book patents were dismissed with prejudice, lifting the FDA approval stay. The company said it could not meaningfully quantify the remaining litigation’s financial impact.
- Commercialization risks include uncertain market acceptance, reimbursement and payer access, competition, product-return estimates, regulatory requirements, clinical outcomes, and reliance on a sole finished-product manufacturer and sole active-ingredient supplier. The company reported an accumulated deficit of $195.625 million and stated it may need additional financing.
- Management reported effective disclosure controls as of September 30, 2016 and no material change in internal control over financial reporting during the quarter. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Xtampza sell-through, prescription growth, realized net pricing, returns, and the pace at which reported revenue converts from deferred revenue and receivables.
- Whether the October offering proceeds and actual cash burn support management’s stated funding horizon into 2019.
- Progress on payer and pharmacy-benefit-manager access, commercial launch effectiveness, and any related discounts or rebates.
- FDA progress for Onsolis and the cost and timing of its manufacturing transfer, as well as Onsolis milestone and royalty exposure.
- Developments in the remaining Purdue patent litigation and any effects on commercialization or financial exposure.
- Manufacturing and active-ingredient supply continuity, and the impact of clinical, post-marketing, and regulatory obligations.