Q4 2021 Collegium Pharmaceutical Inc Earnings Call
Greetings and welcome to the Collegium Pharmaceuticals fourth quarter and full year 2021 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the call over to Alex to sell our head of Investor Relations and corporate communications. Thank you you may begin.
Thank you operator, welcome to Collegium Pharmaceuticals fourth quarter 2021 earnings Conference call. This is Alex <unk> head of Investor Relations and corporate communications at Collegium pharmaceutical.
I'm joined today by Joseph <unk>, Our Chief Executive Officer, Colin Tucker, Our Chief Financial Officer, and Scott Dreyer, Our Chief commercial officer.
John Colleen will share some prepared remarks, and then we'll take your questions.
Before we begin today's call we want to remind participants that none of the information presented today is intended to be promotional and that 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.
Ts, including and without limitation the risks that we may not be able to consummate our proposed acquisition of bio delivery Sciences international on the proposed schedule or at all or derive the expected benefits from that acquisition.
That we may not be able to successfully renegotiate our contracts related to extend the ER prescriptions undesired terms.
That we may not be able to successfully commercialize extends the ER and the NUCYNTA franchise.
And that we may incur significant expense and may not prevail in current or future patent infringement litigation or other litigation pertaining to our products.
These risks and other risks of the company are detailed in the Companys 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 pharma dotcom.
I will now turn the call over to Collegium CEO Joseph Pony. Thank you Alex Good afternoon, and thank you everyone for joining the call at Collegium. Our mission is to build a leading diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions 2012.
Two is a pivotal year for Collegium pharmaceutical and we are laser focused on two critical priorities.
First is the renegotiation of contracts representing approximately 50% of all extends to ER prescriptions. We are absolutely committed to managing extends the ER gross to net to less than 65% beginning in January 2023.
The second is the diversification of our business through an accretive commercial stage high synergy acquisition, which will bolster our long term durable growth and returns profile.
On February 14th we announced the proposed acquisition of BDSI, which was the highest priority target for our team as the threads the needle on all of our stated business development objectives. The industrial logic of this combination is compelling and we believe it will create significant value for our shareholders.
<unk> closed BDSI will be the second commercial stage high synergy acquisition that we have executed since 2020, our prior acquisition of the NUCYNTA franchise was financially transformational for our organization and we are confident that the proposed acquisition of BDSI will propel collegium to the.
Next level.
Upon reflection 2021 was a year of many important accomplishments for our organization and I am encouraged by our overall progress and strong financial position entering 2020 to.
It was also a year in which we faced challenges in our financial results were disappointing I take full accountability for our performance and recognize the need to earn trust every day with our key stakeholders. Most of all our shareholders I am committed to doing so through the actions, we take and the results we deliver.
Key accomplishments in 2021 include we achieved the largest market share increase for Samsung ER since the first full year of launch.
<unk> 2021, with an OE, our market share of 33% and eight percentage point increase versus 2020, we.
We leveraged our cost structure by containing the increase in GAAP operating expense to less than 10%. When GAAP operating expenses are adjusted for stock based compensation restructuring and litigation. The adjusted operating expenses were flat versus 2020.
We implemented a corporate restructuring that positions us to maximize the potential of the collegium portfolio and to efficiently absorb BDSI.
We used our strong cash flow to return $42 $9 million to shareholders through share repurchases and to repay $50 million of debt.
We transitioned to a dedicated manufacturing suite for <unk> ER and we filed a prior approval supplement for an alternate NUCYNTA ER manufacturing site in December we expect that we will begin to see cost of production benefits in 2022 and realize full cost savings in 2023.
We announced the settlement framework to resolve all pending opioid industry litigation, we supported our communities through contributions to life Sciences cares and science from scientists to organizations with missions that we are passionate about stem education, and eliminating the impact of poverty and we.
Receive recognition of our strong corporate culture by the Boston Globe as a top places to work and on the National Top Workplaces Award for the second year in a row.
I wanted to acknowledge the hard work and efforts of the Collegium team, who not only contributed to our achievement of key objectives in 2021, but are working hard today to ensure we exceed our objectives in 2022.
Now I would like to address our primary 2021 challenge persistent COVID-19 dynamics that negatively impacted our ability to deliver on <unk> ER revenue expectations for the full year.
The pain market was significantly impacted by COVID-19 throughout the entirety of 2021 and in a much deeper and more persistent manner than we anticipated.
The emergence of the Delta and Omicron variance only serve to exacerbate. This challenge in the second half of 2021.
Despite this backdrop <unk> ER total prescriptions were up 20% year over year to record highs in to a level that was 98% of our internal forecast for the year.
Our primary challenge was prescription mix.
<unk> ER prescriptions aggressively skewed to exclusive books of business Medicare part D in particular, which manifested in materially higher gross to net deductions and negatively impacted our reported revenue the.
The skewing to Medicare part D.
Can be traced to a decision that was made in Q3 2020, when we secured an exclusive position at a major part D plan. The second largest source of oxycontin prescriptions at that time.
As we anticipated the contract drove a significant increase and extend the ER prescriptions. What we did not anticipate was the lower than expected contribution from our higher margin parity and non contracted books of business.
We believe growth in these books is highly dependent on in person patient visits for.
For the full year in person visits remained down approximately 30% versus pre pandemic levels, which pressured new to brand and switch prescriptions below historical levels and favored continuity of care.
Looking ahead, we will be renegotiating contracts that account for 50% of all stamps. The ER prescriptions and we are absolutely committed to gross to net of less than 65% beginning in January 2023, the improvement in gross to net will propel <unk> ER revenue growth in 2002.
'twenty three and beyond.
Next I will move on to discuss the returns adjustment in our reported financial results, which is related to changes in estimates for product returns and product returns claims.
As a result of events that transpired in the fourth quarter, we were required to record an aggregate adjustment of $38 3 million I will let choline address the technical details and the specific accounting impact but for context. These adjustments are related to wholesalers inability.
To process returns in accordance with their clearly defined contractual obligations.
Our wholesaler customers engaged third parties, including one returns processor that process. The majority of Collegium product returns, we have no contractual or other relationship with this returns processor.
Our returns policy, which is incorporated into our wholesaler contracts provides that we will credit returns that are timely in accordance with our policy.
Wholesalers via their returns processor failed to return our products timely and that failure had two main implications first.
Because we evaluate and adjust our returns right based on historical returns rates and actual returns received the return processors failure to timely return on our products and paired our visibility into changes in our returns right.
We have now increased our returns rate to three 5% and we'll maintain that rate going forward.
Second if and when we receive the product currently in the custody of the returns processor and due to the prolonged delays in processing such returns such return product will no longer be timely in accordance with our returns policy in the face of the sustained failure of their selected.
<unk> the wholesalers have declined with one exception to uphold their obligations under our contracts and reimburse us for the credits they claimed in connection with such returns.
Our intent is to enforce our contracts and where cash that is contractually owed to us and we will pursue all avenues to do so.
For purposes of year end financial reporting however, we were required to record a reserve against the receivable relating to untimely returns as this is now a legal matter and aside from the comments that Colleen will make relating to the impact of the returns adjustment on our financial results we will.
No further comments on this topic and we will only answer clarifying questions on the accounting and the Q&A.
Turning to today.
As we enter this pivotal year. It is important to take stock of where we are now in our path forward from here.
<unk> pharmaceutical is a financially strong organization that is well positioned to embark upon a period of growth and value creation.
We expect to achieve double digit revenue growth in 2022, driven by <unk> ER. Our organization is focused in our cost structure is aligned to our strategy and future ambitions.
The restructuring that we executed in Q4 of 2021 enables us to optimize opex, while efficiently integrating BDSI.
In 2022, we anticipate strong cash flow generation that will bolster our already strong balance sheet with opportunities to strengthen it even further as we build our cash balance to support future business development and pay down debt we.
We have more than $50 million remaining from our $100 million authorized share repurchase program that we can use to opportunistically buyback shares.
The announcement of the proposed acquisition of BDSI represents a major milestone that we are confident will propel collegium to the next level.
I am highly encouraged by the start to the year and believe that 2022 is a pivotal year for Collegium negotiations are underway on contracts, representing approximately 50% of all stamps. The ER prescriptions and we are committed to managing gross to net to less than 65% beginning in January <unk>.
123, this will serve as a propellant for future extents. The ER revenue growth I am also looking forward to closing the BDSI acquisition later this quarter as I am confident that it will take collegium to the next level.
I'll now hand, the call over to Colleen for a discussion of the financials.
Thanks, Joe Good afternoon, everyone.
We execute exited 2021 and a strong financial position.
Company was profitable and generated robust net operating cash flows during the year, we manage our expenses and executed a restructuring that positions us optimally for 2022.
We leveraged our strong cash flows to pay down debt and return cash to shareholders through share repurchases.
Full year revenue fell short of our plans from a financial perspective, we have a lot to be proud of in 2021, and we'll provide more details on the returns adjustment in a few moments, but first I will discuss Q4 and full year financial results.
Total net product revenues for the quarter were $27 4 million compared to $76 3 million in the fourth quarter of 2020 for.
For the year total net product revenues were $276 9 million compared to $310 million in 2020.
Q4, and full year 2021, net product revenues reflect an aggregate $38 3 million adjustment related to product returns inclusive of $26 6 million of returns adjustments for performance obligations satisfied in the prior year.
<unk> ER net product revenues for the quarter were $5 3 million compared to $30 8 million in the fourth quarter of 2020.
For the year total extends the ER net product revenues were $103 7 million compared to $128 million in 2020.
Q4, and full year 2021 extends the ER net product revenues reflect a $13 8 million related to the returns adjustment.
Throughout 2021 extents, the ER was negatively impacted by market dynamics stemming from COVID-19.
The business remains skewed to exclusive accounts and Medicare part D in particular.
Gross to net for the full year for <unk> ER was 76%.
Against that backdrop, I want to reiterate the importance of our commitment to and focus on optimizing the rebate structure for extends to ER in 2022, and achieving gross to net of less than 65% entering 2023.
In the face of the returns adjustment, we have not changed our commitment or expectation of achieving that target.
NUCYNTA franchise net product revenues for the quarter was $22 1 million compared to $45 5 million in the fourth quarter of 2020.
For the year NUCYNTA franchise net product revenues were $173 2 million compared to $182 million in 2020 Q.
Q4, and full year 2021, New center franchise net product revenues reflect $24 5 million related to the returns adjustment.
In contrast to extend the ER and NUCYNTA franchise benefited from COVID-19 market dynamics throughout 2021 due to continuity of patient care.
NUCYNTA also had a pricing tailwind stemming from payer optimization that was effective on January one 2021.
Gross to net for the full year was 52, 5%.
Fourth quarter operating expenses, which include stock based compensation were $32 8 million in the quarter compared to $29 3 million for the fourth quarter of 2020.
For the full year 2021, operating expenses, including stock based compensation were $133 million compared to $123 6 million in 2020, Q4, and full year 2021 operating expenses included $4 6 million related to restructuring expenses and $2 9 million related to.
Litigation settlements.
Adjusted operating expenses, which excludes stock based compensation restructuring expenses and litigation settlements were $20 4 million for the fourth quarter down 11, 7% compared to $23 1 million in the fourth quarter of 2020, and $101 2 million for the full year.
That compared to $101 7 million for the full year 2020.
We remain committed to managing expenses and leveraging not growing our cost structure.
Net loss in the fourth quarter was $25 million compared to net income of $7 million in the fourth quarter of 2020 net income was $71 5 million for the full year compared to net income of $26 8 million for the full year 2020.
non-GAAP adjusted EBITDA was negative $4 5 million in the fourth quarter compared to $38 3 million in the fourth quarter of 2020 non.
non-GAAP adjusted EBITDA for the full year was 118.
Compared to $139 7 million in 2020.
We exited the year with a cash balance of $186 4 million.
During the quarter, we repurchased 25 four.
$4 million in shares under our authorized share repurchase program at an ASP of $20 12.
Which includes $20 million in shares repurchased as part of our $25 million accelerated share repurchase program.
The accelerated share repurchase program concluded in January as of today, we have purchased $47 $9 million worth of shares since the program's inception in August at an ASP of $20 21.
We now have $52 $1 million of our 100 million authorized share repurchase program remaining.
Let me now shift to provide more detail on the returns adjustment.
For context provision for product returns are based on product level returns rates recent in process return claims as well as relevant market events and other factors the company's return policy for compliance and financial reporting purposes.
Wires that product is physically returned within an 18 month window, beginning six months prior to exploration and up until 12 months after exploration.
During the year ended December 31, 2021, it was unprecedented and significant disruptions in the processing of returns our wholesaler customers through a third party returns processor that they directly and indirectly engaged to process. The majority of the company's product returns.
Filled to return products to us timely and in the ordinary course.
Due to the effect of customers and their vendor to return product timely Collegium did not physically received return products for a significant majority of the return claims.
The value of actual returned product received represented less than 20% of the value of product returns claims during the year.
This returns disruption scared a visibility on returns overall enhancing our ability to accurately monitor rates of return in a normal course of business.
In addition, the delay in processing returns resulted in a significant portion of their returns claims not being physically returned within the time period required by the Companys return policy rendering them ineligible for credit.
The company has engaged with this customer to collect amounts due for unprocessed return claims that are not eligible for refunds due to the expiration of the return rights and expects to pursue such collections vigorously inclusive of litigation if necessary.
During the fourth quarter after significant and sustained efforts with customers to resolve the unprocessed return claims we formally denied a significant portion of these claims under the Companys return policy and also concluded that the returns rate had increased.
Although the company has denied and expects to continue to deny credit for product returns that are not in accordance with its returns policy uncertainty exists related to the ultimate resolution of these claims.
As a result of the situation the company recorded an adjustment to reduce net product revenues by $38 3 million.
Because of the impact of wholesaler returns claims as well as an observed uptick in returns ahead of our historical rates. The provision for product returns increase going forward. We will maintain increased estimated returns rate of approximately three 5%, which isn't which is factored into our 2022 revenue forecast and guidance.
Now moving to our 2022 outlook.
Let me start by saying that our expectation is that following the close of BDSI. We will issue detailed combined company guidance for 2022. Our detailed guidance will include total company revenue operating expenses and adjusted EBITDA today, we will provide total product revenue guidance for Collegium excluding bds.
Si and make directional comments on our spending plans also exclusive of BDSI.
We are taking a prudent approach on revenue based off our lines in 2021 and are making no assumptions on COVID-19 market dynamics improving.
We expect to deliver total net product revenues of $315 million to $330 million, an increase of 13% to 20% over 2021 revenue.
Revenue growth will be driven by extends to ER, we will remain laser focused in the year on renegotiating the 50% of total exam for contracts that are up for renewal in the year and driving gross to net down to less than 65% by the beginning of 2023.
Excluding the 2021 impact of returns, we expect NUCYNTA revenue to be flat to slightly down which assumes moderate volume declines and no further improvements in gross to net.
Directionally on operating expenses, we will continue to maintain financial discipline, excluding BDSI, our target opex, excluding stock based compensation is to keep costs flat year over year.
We will generate additional cash flows from operations throughout the year and anticipate cash flow generation to quickly accelerate post close of BDSI.
Our current near term use of cash will be prioritized to building, our cash balances to support future business development and debt Paydown.
We also have $52 $1 million remaining on our authorized share repurchase program as of today.
In closing 2022 is a pivotal year for Collegium, we have a strong financial position entering the year and it will continue to strengthen from here as we optimize our stamps the ER contracts and integrate BDSI into our business post close.
We are truly in an exciting phase of growth and value creation and I am looking forward to the year ahead.
We will now open the call up to questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
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Our first questions come from the line of David <unk> with Piper Sandler. Please proceed with your questions.
Yes.
Okay. Thanks.
What's the chew on here. So I hope you can bear with me.
Let's just start with the.
Hey.
The dynamics on our next steps you said the gross to net for 2021, 76%. So I guess that's it.
I should take that to mean that for Q. The gross to net was.
<unk> continued to trend higher.
I just wanted to clarify and make sure I'm thinking about that correctly and then in terms of what youre guiding to.
Putting all the pieces together it doesn't sound like you're.
Factoring in much if any improvement in the gross to net for <unk> in 2022, I just want to make sure that.
I've got that.
<unk> correctly, maybe just talk to what you are expecting on the gross to net for <unk> in 2022 to the extent you can so let's start there. Thanks.
Okay. David This is Joe I'll pass that question to calling hi, David. Thanks for the question, Yes, you're right I did say full year gross to net for <unk> were 76%. The fourth quarter was highly impacted by the returns adjustment that we took so quarter four was about 95%.
We're expecting modest improvement in 2022 gross to nets. After factoring in the returns rate increase that I spoke of and then looking forward to 2023, you can expect that significant improvement as a result of the exit extends the contract renegotiations.
Okay can you quantify what the gross to net is <unk> without the returns adjustment.
Is there a way to think about it in a normalized way.
Yeah, what I can say is from a full year perspective, the extents the impact was seven points on the gross to nets.
Okay.
And then in terms of.
The the returns.
Is there a.
I mean is there is there something that you know.
We should read into regarding the C.
The higher return rates going forward I mean I.
I guess I know that you talked about.
Having an impaired ability to to get a line of sight into what the returns are but.
Is there something just commercially to read into this.
The higher.
Returns rates.
Just trying to.
Make sure I understand that.
Yes, David that's a great question I would say, there's nothing to read into it commercially.
I think the impaired visibility isn't it is an important point and as we got the information late in the fourth quarter and into the early part of 2022, we felt it was prudent to take the returns right to three 5% across the portfolio and to bake that into.
Our going forward guidance and obviously, that's something we will monitor closely.
Okay, and then one last quick.
A clarification question the $38 million choline and I think you said $26 million was.
What again I just want to make sure I understand the two components one is the $26 million and then the remainder.
What belongs for what bucket.
Yes, the $26 6 million relates to variable consideration adjustment to the prior year, so 2020 than before.
Got it okay.
Thank you very much.
Thanks, Thank you.
Thank you. Our next question comes from the line of Brandon Folkes with Cantor Fitzgerald. Please proceed with your questions.
Hi, Thanks for taking my question.
So along the similar lines.
Accordingly, so I guess, if I look at your press release, you do call out the.
Extensive revenue any adjustments if I add them together it gets about 19, one for extends there in the quarter am I looking at that correctly and then if so.
Hello.
The dynamics with the Destocking.
Anything else you can elaborate on extended quota just given.
This was around $34 million.
And then I guess.
As we move through 2022, and you renegotiate these contracts at 50%, although it's all contracts that begin in January 2023 or are there any that begin.
During two in August reset.
In 2022 that we may see that gross to nets start to tick up towards that goal. Thank you.
Okay. Brandon This is Joe Thanks for the question I'll have Colleen.
To answer the question on <unk> gross to net and then Scott will talk about the renegotiation of the contracts.
Thanks, Brandon for the question. So I think what you were asking us to try to quantify the impact across the products to the $38 3 million for the returns adjustment of $13 8 million related to extensor and $24 5 million for NUCYNTA.
Yeah. Thanks, Brandon when it comes to the renegotiations to very kind of clean break all the renegotiations were doing would be contracts that go into effect January one 2023, and so it would be right off the bat.
Great and then just following up on that.
Yes.
Add back.
That returns adjustment.
Yeah.
The gross to net was still significantly off is that Joe.
Is that what you called out with one customer.
Anything else going on just because I think even absent that.
That adjustment would probably still be talking Guy Smith and extensive.
Yeah.
Yeah, Brandon Thanks for the question so the 76% full year for <unk> gross to nets does include a significant impact of the returns that said, we would have still been in the low 70% for <unk> for the full year and we are projecting a modest improvement in that for 2020.
Jim.
Okay.
So very much.
Thank you.
Thank you. Our next question is come from the line of Serge Belanger with Needham <unk> Company. Please proceed with your questions.
Hi, good afternoon.
So I guess my first question related to the product returns.
Maybe if you can talk about what led to this unprecedented disruptions in disruption in the process.
Any assurances that.
Something that won't replicate itself in this year or in the future.
Yes, Brandon or surge I'm sorry. This is Joe I would say as I can.
Commented on in the script, we're not going to comment any further with regards to the situation at the wholesalers other than to say it emanates from a third party processor of which they all utilize in their inability to return product.
I think when you look at the steps we were required to take in.
In the fourth based off of the data we were seeing in the fourth quarter, we think that that's factored into and we'll be in a good position as we move forward.
Okay.
And then Onyx stanza.
Just looking at the script levels, so far in the first quarter of 2022.
In past years, usually at this time is when.
<unk> extends the scripts are flat lining for the rest of the year. This year, we haven't seen really any growth over.
2021 levels at least late 2021 levels.
And it sounds like most of the growth will come from modest gross to net improvement.
Just curious about your outlook for subscription growth this year and should we expect.
Hamzah to continue gaining market share and the <unk>.
Sure.
Thanks.
Yes, Serge so those are all great questions I'll take that one first off we're very encouraged that expanse in January was up 10%. Obviously this year is different in that there are no material new payer wins that are impacting the market. When you think of the full year, we believe that.
Stamps prescriptions and market share will grow.
<unk> 2022, so I think thats, an important thing and when you look at the guidance. We go Gabe I think that one in the overall revenue I'd emphasize obviously the year on year revenue growth will be driven by stamps up we're certainly incorporating what it is we learned in 2021 and the way I depicted.
That is we are at this point trending we are not doing assumptive forecasting, meaning we're not assuming anything in terms of Covid. We also as you know as part of our strategy.
We believe in the concept of spillover and that the exclusive wins ultimately will have a positive impact in the parity non contracted books of business. We believe the issue there has been COVID-19 , but the fundamental reality. There is also an execution component we haven't yet seen the spillover we.
Were anticipating so our forecast assumes modest growth.
Growth kind of in line to what we experienced in 2021 and both the non contracted in parity books of business and then the only thing I would add to that is that just as a reminder, we also have factored in the three 5% returns right, which we think is prudent.
And one last one just on the.
Renegotiation of contracts I think you mentioned that it would touch on about 50% of your prescriptions.
<unk>.
What is the mix of that 50% is it does it lean more Medicare or.
50, 50 with commercial.
Jeff I'll hand that one to Scott yeah. Thanks for the question Serge, Yes, so about 40% of those prescriptions are in part D. Today.
So a significant skewing towards part D in renegotiation.
Okay.
Thank you.
Thanks Serge.
Thank you. Our next question is coming from the line of Tim Lugo with William Blair. Please proceed with your questions.
Hey, this is lachlan on for Tim Thanks for taking my questions I guess I'll follow a similar pattern with one clarification on the returns and then contracting.
Just wanted to clarify the $38 3 million that you recognized.
You also said about 20% of that.
You've actually received the product for so does that mean that the other 80% is.
I guess.
Contested.
Kind of Miss understanding those numbers there.
And then secondly.
Obviously, I understand you won't talk about contracting.
Contracting or anything, but when you look at the plans where they are on our formulary.
And the overlap with yours.
Do you expect the addition of <unk>.
BELBUCA reducing product too.
To kind of give you a foothold into some of the new plants that you haven't yet.
Got a contract with.
The future contracts.
Okay. Thanks, Lachlan Colleen will take your first question and then I'll talk about contracting.
Hi, Lachlan thanks for the question so the 20% that I referenced in my prepared remarks was when Youre looking at all of 2021 out of all of the returns claimed only 20% of the product actually made it back to physically to collegium into our three PL.
So so that product was a small proportion of the products of 20% was processed in the normal course, and the remainder of the 80% that has not been fully process is what the adjustment relates to.
And last one with regards to contracting the.
The portfolio one of the things we like about the proposed acquisition is the portfolio is distinctly positioned and it plays in different portions of the market. So with the Payor think of it independently.
Strategy, we're executing with ICH stamps of the portion of the market that it plays in obviously has nothing to do and it's distinct from the products. If we're post the close of the BDSI acquisition. So it's really independent.
Thanks.
Thank you.
Thank you. Our next question comes from the line of Craig Frazier with <unk> Securities. Please proceed with your questions.
Thanks for taking the questions.
Just following up on the stamps demand sales for about $19 million in Q4, our gross to net was higher quarter over quarter. It was the delta in gross to net versus Q3 separate from the returns adjustment driven by the same trends that have been impacting the prior quarters.
The patient they are shifting toward the exclusive accounts or was there something else that also embedded sales in Q4.
Yeah.
Yes, Greg This is Joe look the dynamic of the year was consistent and that we believe COVID-19 had an impact that drove a skewing to exclusive part D within exclusive.
That adversely impacted the gross to net so I don't think there was anything different at any point in the course of the year I would emphasize that the two points in the second half of the year and was significant in the fourth quarter is usually we see momentum.
We hit the end of the year, we think both omicron at that point and then the Delta variant in the third quarter exacerbated the challenge with it.
Got it okay.
Returns claims greater than historical levels I understand the physical returns were low relative to claim for our claims higher than what you'd seen in prior years.
Okay.
Thanks for the question, Greg, Yes, based on the assessment of the situation. We have made the judgment to increase our overall returns rate to for three 5% historically, it's been low single digits hovering around 2%, which is in line with industry trends.
Got it Okay and then.
Is the $38 million that you booked in Q4 is that sort of a worst case number and that could decrease if you're successful at getting reimbursement from the other wholesalers or could that number get higher.
I would say it is a prudent number and when we are successful in collecting and coming to agreement with the wholesalers that would come back into the revenue line.
Okay and then my last question on that is it.
What are the cash flow implications that is that cash that has already gone out the door and could come back or is that.
Cast it has not been paid yet just to think about cash flow obligations.
The cash has already been accounted so so that's what I think when they return claims are made.
Cash is debited from outstanding accounts receivables at that time and in the normal accordance of business. Shortly thereafter, when there isn't a disruption the product arrives at the three PL in the transaction is fully settled.
Okay.
Okay. Thank you.
Great. Thanks, Greg.
Thank you there are no further questions at this time I would now like to turn the call back over to Joseph Bonney for any closing comments.
Thank you for your time and attention 2022 was a pivotal year for the organization and I am pleased with the progress we have made so far but recognize we have a lot of work to do we anticipate that we will close the BDSI acquisition by the end of Q1, and we are absolutely committed to managing extend.
The ER gross to net to less than 65% beginning in January 2023, I look forward to updating you on our progress. Thank you and have a good evening.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.