Collegium Pharmaceutical, Inc.

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. If 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 DeSala, Head of Investor Relations and Corporate Communications. Thank you. You may begin.

Thank you, operator. Welcome to Collegium Pharmaceutical's fourth quarter 2021 earnings conference call. This is Alex Basala, head of investor relations and corporate communications at Collegium Pharmaceutical. I'm joined today by Joe Schifoni, our chief executive officer, Colleen Tupper, our chief financial officer, and Scott Dreyer, our chief commercial officer. Joe and Colleen will share some prepared remarks, and then we will 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 uncertainties, including, and without limitation, the risks that we may not be able to consummate our proposed acquisition of BioDelivery 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 Xtams ER prescriptions on desired terms, that we may not be able to successfully commercialize Xtams ER and the New Center 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 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 collegiumpharma.com. I will now turn the call over to Collegium CEO, Joe Schifoni.

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. 2022 is a pivotal year for collegium pharmaceutical and we are laser focused on two critical priorities. The first is the renegotiation of contracts representing approximately 50% of all Xtamsa ER prescriptions. We are absolutely committed to managing Xtamsa 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 it 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. When closed, BDSI will be the second commercial stage high synergy acquisition that we have executed since 2020. Our prior acquisition of the Nusenta 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 2022. It was also a year in which we faced challenges, and 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'm 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 Stamsa ER since the first full year of launch, exiting 2021 with an OER market share of 33%, an 8 percentage point increase versus 2020. 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 Xtamsa ER, and we filed a prior approval supplement for an alternate Nuscenta 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, two 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 earned the National Top Workplaces Award for the second year in a row. I want 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 dynamics that negatively impacted our ability to deliver on extant ER revenue expectations for the full year. The pain market was significantly impacted by COVID throughout the entirety of 2021 and in a much deeper and more persistent manner than we anticipated. Emergence of the Delta and Omicron variants only served to exacerbate this challenge in the second half of 2021. Despite this backdrop, Xtamsa ER total prescriptions were up 20% year-over-year to record highs and to a level that was 98% of our internal forecast for the year. Our primary challenge was prescription mix. Extamsa 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 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 in extensa 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 the full year, In-person visits remained down approximately 30% versus pre-pandemic levels, which pressured new-to-brand and switched prescriptions below historical levels and favored continuity of care. Looking ahead, we will be renegotiating contracts that account for 50% of all Stamps ER prescriptions, and we are absolutely committed to gross the net of less than 65% beginning in January 2023. The improvement in gross to net will propel Xtamsa ER revenue growth in 2023 and beyond. Next, I will move on to discuss the returns adjustment and 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 Colleen 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 engage third parties, including one returns processor that process a 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. The 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 rate based on historical returns rates and actual returns received, the return processor's failure to timely return our products impaired our visibility into changes in our returns rate. We have now increased our returns rate to 3.5% and will 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 vendor, 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 recoup 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 return adjustment on our financial results, we will make no further comments on this topic and will only answer clarifying questions on the accounting in the Q&A. Turning to today, as we enter this pivotal year, it is important to take stock of where we are now and our path forward from here. Collegium 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 Xtamsa ER. Our organization is focused and 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 an 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 have more than $50 million remaining from our $100 million authorized share repurchase program that we can use to opportunistically buy back 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 at ER prescriptions, and we are committed to managing gross to net to less than 65% beginning in January 2023. This will serve as a propellant for future Stamps at 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 will now hand the call over to Colleen for a discussion of the financials.