Q3 2021 Collegium Pharmaceutical Inc Earnings Call
Greetings and welcome to the Collegium Pharmaceuticals third quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference call is being recorded I would now like to turn the conference over to your host Julie Fallon. Thank you you may begin.
Welcome to Collegium Pharmaceuticals third quarter 2021 earnings Conference call. This is Julie found one on behalf of Collegium.
I'm joined today by Joseph <unk>, Our Chief Executive Officer, calling Tucker, our Chief Financial Officer, and Scott Dreyer, Our Chief commercial officer.
Before we begin today's call we want to remind participants that none of the information presented today is intended to be promotional.
And then any forward looking statements made today are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
You are cautioned that such forward looking statements involve risks and uncertainties, including and without limitation.
The risks that we may not be able to successfully commercialize extensive E. R. M. If the NUCYNTA franchise.
And we may incur significant expense and may not prevail in current or future opioid industry litigation and investigations patent.
Infringement litigation or other litigation pertaining to our products.
These risks and other risks of the company are detailed in the company's periodic reports filed with the Securities and Exchange Commission.
Our future results may differ materially from our current expectations discussed today.
Our earnings press release, and this call will include discussion of certain non-GAAP information.
You can find our earnings press release, including relevant non-GAAP reconciliations on our corporate website at Collegium farm and dotcom.
I will now turn the call over to Collegium CEO, Joe ship only.
Thank you Julie good afternoon, and thank you everyone for joining the call.
Today, we will discuss our performance in Q3 and through the first nine months of the year. In addition to our near term outlook.
Collegium, we remained focused on our mission of being the leader in responsible pain management, and we are committed to driving growth in our business and creating value for shareholders. We will do this by maximizing the potential of our differentiated portfolio of pain products, achieving our operational and financial goals.
Flooring, our balance sheet and strategically investing in our long term growth.
In the face of challenging market dynamics throughout 2021 inclusive of the third quarter, we are making progress against our full year operational objectives and are on track to achieve record total revenue net income and adjusted EBITDA.
As we have consistently emphasized throughout the year COVID-19 dynamics have adversely impacted the mix of exams the ER prescriptions.
<unk> gross to net beyond plan and negatively impacting <unk> ER revenue. This dynamic continued in the third quarter. Conversely, the NUCYNTA franchise has benefited from continuity of care and gross to net favorability.
We expect to deliver total revenues of $330 million to $340 million in 2021.
Cheap differently than initially anticipated.
Total revenue operating expenses and adjusted EBITDA continue to track to the overall expectations that we communicated in January.
Colleen will share our updated 2021 guidance.
We believe that we are embarking on a phase of growth and value creation for the organization and I remain confident in the underlying strength of our differentiated pain portfolio and the opportunities. We have ahead to meet our operational and financial objectives and to deliver value for our shareholders in the near and long term.
Yeah.
Notable accomplishments in the first nine months of 2021 include we posted record total revenue net income and adjusted EBITDA.
Expanse of ER market share increased to 32.5%.
We grew NUCYNTA franchise net revenue to over $150 million a level not seen in the first nine months of a year. Since 2018, we delivered on our commitment to leverage not grow our cost structure.
We further strengthened our financial position and efficiently and efficiently deployed our balance sheet to pay down debt and return capital to shareholders through share repurchases.
We demonstrated our commitment to leading with science through publications and the sponsorship with four poster presentations at pain week, all of which highlight important real world data related to the use misuse abuse and diversion of stamps the ER and the NUCYNTA franchise, and we supported our communities.
Through contributions to science from scientists and life science cares two organizations with missions that we are passionate about stem education and eliminating the impacts of poverty.
For the remainder of 2021, we are focused on maximizing the value of our pain portfolio, achieving our operational and financial goals deploying our balance sheet efficiently and effectively and actively pursuing business development opportunities that will help build and diversify our business longer term.
Moving forward, we expect to grow expand our revenue by growing total prescriptions, improving mix and optimizing existing payer contracts, we will manage extensive E. Our gross to net to less than 65% beginning in 2023, Scott will provide.
More detail on this topic during his update.
The NUCYNTA franchise is well positioned to deliver relatively stable revenue on a going forward basis. As we have demonstrated we will offset pressure on prescriptions with net price favorability.
We are absolutely committed to leveraging not growing our cost structure, specifically operating expenses, excluding stock based compensation and generating strong net operating cash flows.
As it pertains to deploying our balance sheet, we are focused on creating value for our shareholders. Both in the near and long term.
Executing on business development transactions that will build and diversify the business is our number one priority.
We are also returning capital to shareholders through share repurchases.
Our share repurchase program announced on August 16th enables us to purchase up to $100 million of our shares and we have been active buyers of our stock since its inception.
We believe in the long term success of our company and that our stock at current valuation represents a very attractive investment with a favorable return profile for investors.
As such we announced today that as part of our repurchase program. Our board has authorized us to enter into a $25 million accelerated share repurchase program reinforcing our commitment to deliver value to our shareholders through effective balance sheet deployment.
Our business development strategy is to diversify the organization in one or more of the following ways diversifying within pain through commercial stage high synergy acquisitions.
Diversifying beyond pain through commercial stage, lower synergy acquisitions, and diversifying into non opioid pain solutions through the acquisition of late stage development assets defined as phase two or later that have the potential to generate revenue in the 2025 to 2027 timeframe.
We are highly active on multiple business development fronts, the strength and durability of our business allows us to be disciplined in our approach that being said business development is our top priority.
In summary in the face of challenging market dynamics, our business is strong and I am confident in our ability to drive growth in our existing paying portfolio deliver on our operational and financial objectives, effectively deploy our balance sheet and strategically invest in our long term growth.
I'll now hand, the call over to Colleen for a discussion of the financials.
Thanks, Joe Good afternoon, everyone Q3 was a solid quarter and we remain in a strong financial position, we leveraged our operating cost structure pay down debt and return capital to shareholders through the share repurchase program authorized by the board in August.
The program's inception, we have been active buyers of the Companys stock, which reflects our belief in the long term strength of the company and the attractive valuation. We are currently seeing in the market.
Before I run through the financials I do want to remind you that I will be referencing GAAP and non-GAAP financial measures. During my remarks, and would refer you to our press release issued earlier today for a full reconciliation of GAAP to non-GAAP results.
Total product revenue was $78 8 million for the third quarter flat relative to the third quarter of 2020.
Extensive E. Our net revenue was 30 million for the third quarter, a decrease of 7% from the third quarter of 2020.
Gross to net discount was 73% in the quarter as the mix of business skewed further than expected to exclusive accounts.
And Medicare in particular.
This dynamic highlights the importance of our commitment to managing gross to net going forward and is the basis for our positive outlook for the business. We are both laser focused on and have significant opportunity to optimize the rebating structure brick stamps that in 2022 with the impact of that opportunity man.
First thing in 2023 and beyond.
We will manage gross to net discount to less than 65% beginning in 2023.
The NUCYNTA franchise continues to benefit from the execution of our Payor strategy and the continuity of care associated with Covid dynamics. The gross to net discount was 46% in the quarter versus 53% at the end of last fiscal year once again better than our expectations.
NUCYNTA franchise net revenue was $48 8 million in the third quarter, an increase of 4% from the third quarter of 2020.
Operating expenses, excluding stock based compensation were $26 million in the third quarter compared to $23 4 million in the same period of 2020.
Operating expenses, excluding stock based compensation were $80 9 million for the nine months ended September 30th 2021 a slight increase over $78 6 million in the 2020 period due to the resumption of expenses coming out of the Covid Lockdown period of last year Importantly, we saw revenue growth exceeding the.
Increase in operating expenses, we remain committed to leveraging not growing our cost structure as we have throughout 2021.
Year to date non-GAAP adjusted EBITDA was $122 8 million and our cash balance was not $193 2 million.
During the third quarter, we executed on our commitment to efficient balance sheet deployment through the repurchase of over 850000 shares under the share repurchase program, we announced in August returning approximately $17 $5 million of capital to shareholders and the roughly seven weeks of the quarter during <unk>.
Which the program was active.
We have remained buyers during Q4 purchasing more than 240000 shares for approximately $4 $9 million quarter to date.
As we announced today, our board has authorized a $25 million accelerated share repurchase under the previously announced 100 million dollar program, which will enable us to increase our level of activity.
We continue to see a disconnect between the current market value of our shares on the one hand, and the intrinsic enterprise value of Collegium supported by a strong financial return profile on the other hand, we believe repurchasing our shares at current valuation provides a highly attractive return on invested capital for.
Our shareholders.
Now onto 2021 financial guidance.
Market dynamics in the third quarter, driven primarily by COVID-19 had a bigger negative impact on the market and extends the ear mix than we anticipated as a result, we are updating our previous guidance communicated on August 5th for 2020. One we now expect total revenue in the range of 330.
Up to $340 million.
This is comprised of extensive E. Our revenues between $130 million to $135 million and NUCYNTA franchise revenues between 202 hundred $5 million.
Total operating expenses, which include stock based compensation in the range of $125 million to $130 million and adjusted EBITDA, which includes excludes stock based compensation in the range of $165 million to $170 million.
Although product mix has shifted expectations for overall revenues and profitability remained consistent from the start of the year.
Let me close with some key points.
While the environment proved more challenging than anticipated this quarter, our business and financial position remained strong overall in Q3.
For the remainder of the year, we are focused on commercial execution, leveraging our cost structure generating net operating cash flows and strategically pursuing business development opportunities that will help build and diversify our business longer term.
And while we execute on those operational and strategic objectives, we will continue to deploy our balance sheet in an efficient and disciplined manner through the share repurchase activities.
With that I will now turn it over to Scott.
Thanks Colleen.
In Q3, we continued to make progress on our goals for the portfolio growing market share with extensive E R and maintaining market share with NUCYNTA, we faced more challenging market dynamics than anticipated, which impacted the performance of the portfolio in the quarter.
In office patient visits and pain specialty were down approximately 30% from pre COVID-19 levels, leading to a negative impact on the new to brand market, which remains down over 25% compared to pre pandemic levels and was down 10% sequentially versus the second quarter. We believe these dynamics that had an adverse impact on the <unk>.
Both rate of extensive E R and Conversely have benefited the NUCYNTA franchise due to continuity of care.
While I'm not satisfied with extensive <unk> growth in the third quarter I am encouraged that extends CER achieved all time highs for total prescriptions total prescribers and market share in the third quarter. There were 19200 prescribers in the quarter and extensive E. R. Exited Q3, with a 32 and a half share.
The ER Oxycodone market up one percentage point from the end of the second quarter.
The year to date market share gain of seven four percentage points is the largest we have ever achieved brick stamps E. R. In the first nine months of the year since launch.
Extensive E. Our growth continued to skew toward exclusive accounts and in particular Medicare part D. We believe negative market dynamics associated primarily with COVID-19 adversely impacted growth in the nonexclusive books of business for.
For the remainder of the year, we're focused on strengthening our commercial execution and leveraging new marketing and sales resources to grow <unk> market share within the non exclusive books of business.
NUCYNTA franchise market share was stable in the third quarter at 6% and the prescriber base was stable at 11500 prescribers. Our payer strategy has resulted in significant and sustained gross to net improvement and the NUCYNTA franchise has benefited from the continuity of care associated with Covid dynamics, we expect the.
These favorable dynamics to continue through the end of the year.
Now for a payer update.
During 2021, our market access team has effectively executed our payer strategy for <unk>. Our first we strengthened <unk> formulary position by securing new exclusive wins across 3 million lives, bringing total exclusive lives to $96 million.
Market share growth within new and incumbent exclusive accounts as well as across the 40 million lives covered in a parity position, where there is significant opportunity to grow market share will serve as the foundation for total prescription growth in 2022.
Second we have successfully renegotiated our first exclusive Medicare part D contract.
We were able to materially roll back the discount rate, while maintaining <unk> exclusive formulary position.
This will have a positive impact on extensive E. R. Beginning in the first quarter of 2022.
Importantly, it was our first chance to validate our strategy of optimizing extensive E. Our contracts when the opportunity presented itself. We're highly encouraged by this outcome.
As we move into 2022, our payer strategy for <unk> has evolved and it's two pronged first.
Selectively securing new exclusive and parity wins at desirable rates.
Second optimizing exist existing exclusive contracts when they are up for renegotiation in 2022 and 2023.
In 2020 to approximately 50% of extensive E. R. T. Rx is are in plans in which contracts need to be renegotiated and then an additional 30% are up for renegotiation in 2023 in.
In total over the next two years, we will be renegotiating contracts in plans that currently generate 80% of extends the ER prescriptions.
We'll leverage these opportunities to manage extensive E. Our gross to net to less than 65% beginning in 2023.
To summarize the actions that we're taking are focused on finishing 2021 with momentum and positioning the portfolio for success in 2022.
In the face of challenging market dynamics year to date, we've expanded extends <unk> market position and we have meaningfully grown NUCYNTA franchise revenue <unk>.
<unk> is well positioned to grow total prescriptions and revenue through strong ongoing commercial execution.
As our payer strategy evolves to include a focus on optimizing existing contracts, we will manage it stamps that your gross to net to less than 65% beginning in 2023.
NUCYNTA franchise will continue to benefit from sustained gross to net improvement as a result of successful execution of our payor strategy and is well positioned to deliver on our expectations going forward with that I'll turn it back to Jeff. Thanks, Scott I will now open the call up for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from David and sell them with Piper Sandler. Please proceed with your question.
Hey, Thanks, So just a couple of questions. So on extends our.
So.
I just wanted to.
Drill down on.
What you're trying to accomplish.
I guess you know my my bias would be that you know once you have a.
A certain rebate, it's hard to go back and get.
A lower rebate on the same.
Payer so is it fair to assume that.
You are going to be doing something similar to what you did with NUCYNTA, which is just walk away from suboptimal contracts.
Ultimately the getting to that 65% going to be largely a function of walking away from those contract sacrificing some volumes, but ultimately getting better overall blended economics.
So is that one way to think about it.
And then I have a few follow ups.
Okay, Hey, David This is Joe I'll, I'll start and maybe Scott could add some color first off I would think of extend so different the NUCYNTA.
Based off of where that where its at its lifecycle. As you know we have a long runway with ICH stamps. So that goes out until 2033.
The second thing to be mindful of is the clinical story of expansion the differentiation of the abuse deterrent technology, along with the impressive and evolving body of real World data. The third thing is was we're talking with plans they understand what it is they're able to.
<unk> accomplished by adding <unk> to their formularies and I would be mindful that in these exclusive plans, we have exceptionally high market shares.
The final comment I would make and I really would not underestimate the importance of the first opportunity we had to renegotiate an exclusive contract and that we were able to materially roll back the discount while maintaining extensive formulary position. So.
As we outlined during our prepared remarks, we have a huge bolus of extent so prescriptions up for renegotiation over the next two years and we believe and we're setting out.
To roll the discount rates back based off of the clinical value that has been demonstrated in the value to the plan, while maintaining expanse and a preferred formulary position.
Okay. That's helpful and I wanted to one of my follow ups is on.
The net debt renegotiation yet.
<unk> had a successful outcome can you can you talk to and I realize this despite a more than they would be willing to go into but if you can talk to.
What were the drivers of being able to get that rebate down.
And in particular was there anything unique about that particular plan.
What drove this particular result.
Yeah. Thanks, David It's Scott, So I think I wouldnt frame. It is unique I'd reinforce some of the things Joe just said the situation was a plan that was committed to the clinical differentiation of extensive saw the success that was driven clinically over the last few years saw the re emerging.
Bold evidenced that backs up the differentiated label when they signed the deal and now a share that was very high for <unk> and we are sure were where they were all in and so us being able to work with them with what let us be able to drive the rebate down while maintaining exclusivity and I'd say, that's a story that will be something we will continue.
The other ones that are emerging to be renegotiated and David the only thing I would add and this was probably a good reminder, for everybody. When we started out on our strategy with its stance. The E. R. One of the things that was important was up for us for any plan that made a decision to add extensor was their belief in the.
The clinical value in and in particular, the differentiated abuse deterrent technology as you know the vast majority of these plans had press released the clinical basis of their decision and certainly the product has performed within those plans in a manner in which they would have expected in terms of the <unk>.
Sure, we achieved and as I said, the evolving data that they're able to see supplemented by the real world performance of extents the ER.
Okay. That's helpful. And then last last question is just on capital deployment and on on Biz Dev.
No.
It's obvious that that competition for assets can be can be intense so.
I wanted to get your thoughts on it.
If you don't find something that's optimal would you lean more into share buybacks.
Or even consider.
A dividend.
In other words in the absence of BD and I'll talk through.
Those other options.
Yeah. So it's a great question, David the first thing I would emphasize is we are committed to creating value for our shareholders.
We believe it's an and not an or proposition as it pertains to BD and.
It declined sequentially Knick stands out and you said that you know by 2023.
You hope to get your gross to nets down to 65%. So given what's happened recently and given what you said about 2023 are you implying that in 2022 that extends our best case will be flat or possibly shrink.
And then secondly, I'm trying to understand whats happening with your guidance because.
You gave the most recent set of estimates you know in the first week in August so the quarter was almost halfway through.
And in the previous quarter, you had reduced your extends our estimates pretty considerably.
Given that you're already halfway through the quarter.
What what happened in the second half of the quarter.
Why Werent you more conservative given what happened in the prior quarter or two because once again, you're cutting your extends to estimate so it's a bit of a head scratcher demand trying to understand it and if you could explain it that'd be great.
Sure. So David this is Joe and I appreciate the questions.
I'll start off with your first question and then hand guidance off to call Wayne look with regards to what we believe has been happening with the stamps and 2022.
Has been a consistent impact we believe of COVID-19 impacting first off the overall market.
And then impacting extent so from the perspective of where it is that we're sourcing business from which as we've said throughout the year is skewing to exclusive and with an exclusive Medicare part D, which is our lowest margin business. That's pressuring gross to net which is adversely.
Impacting <unk> net revenue.
As you know with the Delta variant, where we werent anticipating there to be improvement.
And the guidance question off the call in.
Hi, David This is Colleen I appreciate the question in relation to the change in guidance in early August when we guided for the remainder of the year, we expected the COVID-19 dynamics to slightly improve or at least stabilize and what in fact happened in the third quarter is that it worsened and that resulted in the higher gross to.
That's from X stamps that and that was just not what we were expecting.
Got it okay, and just a follow up so just reading between the lines Joe.
You're saying that prescriptions are going to grow next year you have this part D.
Plan hitting the revenue first quarter revenue situation pretty hard.
Are you basically saying that you expect revenues to grow next year or are you not sure and then.
And then secondly on.
On BD in response to Davids questions. I think you said something about near term so.
Should we I know you've been looking at assets for a long time, and obviously you don't want to overpay and you wanted to buy the right company or REIT asset at the right price.
But when you say near term should we be thinking that something's going to happen in the next six months or so thanks.
Yeah, So David what I would say and we will give guidance for 2022 in January my expectation is that we are growing both prescriptions and revenue in 2022.
From a BD perspective, I would say we're active we're looking to do the right deal. We know and are pursuing things that we think are desirable I would love to be able to announce a deal tomorrow I think it is a reasonable expectation that by the end of 2022, I would expect us to have a deal.
<unk> completed.
Okay. That's fair thanks for the clarification.
Got it thank you.
The gate in 2022 to both be growing prescriptions in revenue.
Okay.
And I guess a lot more for Scott can you just again run through some of the new formulary additions that.
You are expecting for 2022 and.
It is the only ones were expecting now or do you expect more to be added throughout the year.
Yep, Yeah. Thanks, Serge. So we added 3 million lives, which then takes us to a $100 million exclusive lives and then I want to reinforce what Joe had mentioned the 40 million parody lives, we have where we haven't scratched the surface, where low end market share and have a tremendous opportunity to growth.
That's the focus on the platform for growth and by all means we're all always still in discussions and we're sitting here. The first week in November but there could be other wins that we get as we end the year and so we'll keep executing around those opportunities, but for now it's 3 million new for a total of 100 million exclusive.
Got it.
Thank you.
Yep.
Our next question comes from or 11 with HC Wainwright. Please proceed with your question.
Okay I have a couple of questions. Thanks.
Maybe just as a kind of a clinical whine about the aviation.
<unk> to sort of fall on both.
Both dates.
The.
And when it comes time J.
What <unk> on your orange or and I'm, sorry, you're breaking up.
Can you hear me right now.
Yes, Okay I'll just move fund when it comes time to renegotiate what's really the main driver of leverage in that conversation you've spoken about this one pair recognizing the clinical value and they were all data and clearly they were early early adopter, then and an on board.
From the start yeah, but with some of the bigger players is it really a function of your market share that you have and those exclusive plans that gives you the leverage in that conversation such that if if if you are willing to walk away or you do walk away are they going to be stuck with the material out of sticky business at their then painful price. So there it's really.
Just the dollars and cents question for them or if you know can they pushed back and if and if the answer is no are you then theoretically actually blocked from all of that volume versus.
Business being sticky and then I do have another question.
Yeah. So we're in this is Joe I'll I'll take that one maybe so look I think we approach any negotiation with humility and I think it's the totality of the clinical the market share that we have and remember these plans were were exclusive.
Obviously COVID-19 has made.
You know pushing pulling through those plans are very difficult to date.
But it's not that there is no patient visits.
Last year and a half of Covid. So I'm just curious what have you learned.
So far since you've gotten as positions are about.
How they can perform are there any examples where he said look when we did X Y and Z you know in certain territories with parity position, we grew share X amount in F. N. B Rx visits are volume and visits with higher you know here's here's the potential.
Yeah, So I'll start and maybe Scott can add on this the honest answer to that question is we actually do not know.
What can be accomplished in a parity position, which is one of the biggest disappointments of the past year and a half or so.
Because it impacts how it is we think about contracting on a going forward basis.
As you heard in Scott's comments, we're choosing to be very selective right now in terms of new additions because we don't have the answer to the question of what we can accomplish in the parity position. What we know is if the patient isn't going in to see the physician.
Minus the push of the payer, we're not seeing market share anywhere near the level that we had anticipated and you are correct. It's not that we're not growing in parity. Because we are we're also growing where we're non contracted we are just not growing anywhere near the rate we would have anticipated.
<unk>, which is driving the dynamic of the gross to net pressure because we're getting a far higher proportion of our business from exclusive than we anticipated now I'll close this out by saying, we love the market position.
Alright, we've grown added more market share to expand this year than in any year other than the first year of launch and that gives us a position to leverage as we go forward.
Okay I appreciate it thanks.
Got it thank you.
Our next question comes from Tim Lugo with William Blair. Please proceed with your question.
Hi, This is John on for Ken. Thanks, So much for taking my question I just wanted to say congrats on continuing to managing your operating expenses due to the pandemic and just wondering with all the new rate.
Hey, guys. Thanks for taking the questions.
Sorry, if I missed this but did you say what the gross to net for example, it wasn't in the quarter.
Hi, Greg This is Colleen, yes, I get it was 73%.
Got it. Thank you and then I just wanted to follow up on the plan to renegotiate contracts I know Youre limited by when the contracts come up for renewal you had the recent successful renegotiation do you need to have similar success with the contracts that come up for renewal next year to get to your gross to net target for 2023 or do you just need success with a portion.
The plans are.
Any color on that would be helpful. Thanks.
Yeah. Thanks, Thanks, Craig So what I'd anchor too is we need to have some success and we have unbelievable opportunity. So the deal is.
Despite what we've already accomplished which starts in 'twenty two still 80% of prescriptions are up for renewal 50 in 'twenty, two and 30% and 23. So of course, we need some success to bring that gross to net down, but we have a tremendous amount of opportunity and thats why we are committed to be below 65% beginning in 2012.
Three.
Hey, Greg This is Joe I would give you a perspective, we're trying to achieve a balance.
Maintaining our formulary position, while improving the discount rate.
If we were to lose a few defined losing as we didn't get the discount rate that we wanted.
<unk> have a great evening.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.