Collegium Pharmaceutical, Inc.

Greetings and welcome to the Collegium Pharmaceutical fourth quarter and full year 2022 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 this conference, please press star zero on your telephone keypad. Please note that this conference call is being recorded. I will now turn the call over to Christopher James, Vice President of Investor Relations at Collegium. Thank you. You may begin.

Welcome to Collegium Pharmaceuticals' fourth quarter and full year 2022 earnings conference call. I'm joined today by Joe Ciafoni, our Chief Executive Officer, Colleen Tupper, 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 that any forward-looking statements made today are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Your caution that such forward-looking statements involve risks and uncertainties, including and without limitation, the risk that we may not be able to successfully commercialize our products, that we may incur significant expense, and that we may not prevail in current or future litigation pertaining to our business. 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 in 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 collegianpharma.com. I will now turn the call over to our CEO, Joe Chiafoni.

Thank you, Chris. Good afternoon and thank you everyone for joining the call. Today we will discuss our performance during the fourth quarter and full year 2022 and share our strategy to achieve a banner year in 2023. At Collegium, we are focused on building a leading diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions. During the fourth quarter, we continue to support the communities where we live and work. We made charitable donations to organizations leading STEM education initiatives, serving meals to people living with critical and chronic illnesses, and providing warm weather clothing to neighbors in shelters and emergency housing. In recognition of our longstanding dedication to serving as a responsible corporate citizen, we published Collegium's inaugural ESG report. We are proud of this milestone as it reflects our deep commitment to operating with integrity, accountability, and responsibility in all facets of our business while improving the health and wellbeing of our communities. I'd like to thank our team for their commitment to our mission and for making Collegium a great place to work. 2022 was a pivotal year for Collegium. We achieved nearly all of our key strategic and financial objectives. Key accomplishments in 2022 include we expanded our commercial portfolio through the financially transformative acquisition of BDSI, establishing Collegium as the leader in responsible pain management. We achieved run rate synergies of approximately $85 million, which exceeded our target of $75 million. We delivered record full-year net revenue and adjusted EBITDA, We successfully completed the renegotiation of extamps ER contracts, resulting in an expected gross net of 61 to 63% in 2023. We resolved all 27 opioid industry related lawsuits brought against the company. And each of those lawsuits has been dismissed. We announced the validity of certain claims of the patents protecting Belbuco were upheld on appeal. We expect that Alvagen will be barred from entering the market with its product until 2032. And we de-levered the balance sheet and returned capital to our shareholders while building our cash position. These achievements lay the foundation for 2023 to be a banner year. In 2023, we expect significant top and bottom line growth and to strategically deploy capital to create long-term value for our shareholders. Our 2023 financial guidance includes growing adjusted EBITDA by over one and a half times revenue and over two times adjusted operating expenses. We are confident in our ability to deliver on our financial and strategic objectives. We remain laser focused on executing our three-phase action agenda. During 2022, we successfully completed phase one, seamless integration, And phase two, generate momentum. The key accomplishments were the efficient integration of BDSI and the successful renegotiation of Xtamsa ER contracts. We are committed to managing gross to net to less than 65% going forward. This January, we launched phase three, accelerate. Consistent with our 2023 financial guidance, We expect to see an immediate acceleration of top and bottom line growth in 2023 propelled by lower extant ER gross to net, prescription growth of Belbuca and extant ER on a full year basis, and the full year impact of the synergized cost structure. We are excited to make 2023 a banner year for Collegium. Our two-pronged strategy is clear and thus execution is our strategy. We are focused on two critical priorities, maximizing the potential of our paying portfolio and deploying capital. We plan to maximize the potential of our paying portfolio through strong commercial execution and by leveraging our fully synergized cost structure. We expect Xtamsa ER revenue to immediately accelerate as a result of gross student improvement. And on a full year basis, we expect Belbuca and Xtamsa ER prescription growth. We anticipate that the Nuscenta franchise and Simproic will be steady contributors. With our current financial strength and cash flow generation, we are focused on deploying capital to create long-term value. The top priority is business development. We believe current market conditions are conducive to potentially getting a deal done. We are active, engaged, and will remain disciplined in our approach. We are focused exclusively on commercial stage opportunities with peak sales potential of over $150 million. Importantly, we are looking for assets that are differentiated with exclusivity that runs into the 2030s. We are committed to rapidly paying down debt and opportunistically using our share repurchase program to return capital to our shareholders. Although early, we are encouraged by the start to 2023 and are confident that it will be a banner year for Collegium. Our strategy is clear and our organization is aligned and focused on execution. We are committed to achieving our strategic and financial objectives while creating long-term value for our shareholders. I will now hand the call over to Colleen to discuss the financials.

Thanks, Joe. Good afternoon, everyone. 2022 was indeed a pivotal year. marked by growing financial strength for Collegium. We generated record quarterly and full year revenue and adjusted EBITDA, maintained financial discipline and leveraged our strong cash flows to execute on our capital deployment strategy. Financial highlights for the fourth quarter and full year 2022 include net product revenues were a record 129.6 million for the fourth quarter compared to 27.4 million for the fourth quarter of 2021. 2022 net product revenues were a record $463.9 million compared to $276.9 million in the prior year. As previously disclosed, during 2022, we achieved a complete resolution of our returns matter, reflecting a positive $4.7 million adjustment associated with the resolution. while the fourth quarter and full year 2021 reflect a negative $38.3 million adjustment related to the returns matter. Belbuca net revenue was $42 million in the fourth quarter and $126.5 million in 2022. 2022 sales reflect the nine months Collegium owns Belbuca. For the fourth quarter of 2022, Xtamsa ER net revenue was $35.2 million and Xtamsa ER gross to net was 69.1%. For 2022, Xtamsa ER net revenue was $138.8 million and gross to net was 69.3%. Excluding the one-time benefit related to the resolution of the returns matter, 2022 Xtamsa ER gross to net would have been 71.1%. We expect Xtamsa ER gross to net to be between 61 to 63% in 2023 as a result of the successful contract renegotiations we carried out in 2022. NuCinta franchise net revenue was $47.8 million in the fourth quarter and $184.5 million in 2022. GAAP operating expenses were $38 million in the fourth quarter compared to $32.8 million in the fourth quarter of 2021. For 2022, GAAP operating expenses were $176.2 million compared to $133 million in 2021. Adjusted operating expenses were $32.3 million in the fourth quarter compared to $20.4 million in the fourth quarter 2021. For 2022, adjusted operating expenses were $122 million compared to $101.2 million for 2021. Net loss for the fourth quarter was $7.2 million compared to net loss of $25 million in the fourth quarter of 2021. For 2022, net loss was $25 million compared to a net income of $71.5 million in 2021. Non-GAAP adjusted EBITDA was a record 76.4 million for the fourth quarter and a record 266 million for 2022. Gap loss per share was 21 cents basic and diluted in the fourth quarter of 2022 versus 73 cents gap loss per share basic and diluted in the fourth quarter of 2021. Gap loss per share was 74 cents basic and diluted in 2022 versus GAAP earnings per share of $2.05 basic and $1.86 diluted in 2021. Non-GAAP adjusted earnings per share was $1.09 in the fourth quarter versus $0.07 non-GAAP loss per share in the fourth quarter of 2021. For 2022, non-GAAP adjusted earnings per share was $3.96 versus $2.58 in 2021. Please see our press release issued earlier today for a reconciliation of GAAP to non-GAAP results. As of December 2022, our cash balance increased to $173.7 million. During the quarter, Collegium paid down $25 million in debt. We ended the year with net leverage of two times net debt adjusted EBITDA. We are pleased with our strong performance in the fourth quarter in 2022. We achieved our financial goals for the year, growing revenue at more than three times the rate of adjusted operating expenses, increasing our cash position, and exiting 2022 with financial strength. We are reaffirming our financial guidance for 2023. We expect net product revenues in the range of $565 to $580 million, adjusted operating expenses in the range of $135 to $145 million, and adjusted EBITDA in the range of $355 to $370 million. Our 2023 financial guidance is fueled by our growth drivers, Bell Buca and Xamsa ER, and supported by our key contributors, Lucinta and Simproic, as we strive to maximize the potential of our pain portfolio. Our capital deployment strategy is focused on creating long-term value for our shareholders. Our top priority is business development, and we are committed to taking a disciplined approach in a market that is potentially conducive to a transaction. With the integration of BDSI Complete and our strong financial position, we have the ability to execute on a potential acquisition. We are committed to rapidly deleveraging our balance sheet. We're on track to repay $162.5 million of debt in 2023. which would put us at less than one and a half times net debt to adjusted EBITDA at year end. Our ability to deliver quickly is a testament to our strong cash generation. Finally, we have the ability to return capital to our shareholders by opportunistically leveraging our share repurchase program. Since the inception of our initial board authorized repurchase program in August of 2021, we have returned $62 million in capital to our shareholders. which includes 19.1 million in capital returned to shareholders in 2022. In January 2023, our board authorized a new share repurchase program for $100 million. As a matter of good corporate hygiene and given the recent strength of our stock, just a few weeks ago, we completed a $241.5 million convertible note financing with a maturity in February of 2029. The later maturity provides us with more financial flexibility in the management of our debt. We used $140.1 million of net proceeds from the offering to partially repurchase our convertible senior notes due in 2026, and we intend to use the remaining approximately $95 million of net proceeds for general corporate purposes, including the implementation of our capital deployment strategy. Overall, we are very pleased with our performance in 2022. We are in a phase of growth, are entering 2023 in strong financial standing, and are well-positioned for a banner year. I will now turn it over to Scott.

Thanks, Colleen. Our commercial portfolio is strong. Belbuca, Xtamsa ER, and New Cynthia ER have a combined 50% share of the Branded ER market. Our pain products have large prescriber bases and broad market access positions. Collegium is the leader in responsible pain management. Our pain portfolio is viewed favorably by HCPs. Our growth drivers, Belbuca and Xtamsa ER, are seen as highly differentiated and HCPs have a strong intent to increase prescribing of our products. The work we completed in 2022 positions Belbuca and Xtamsa ER to grow market share and prescriptions on a full year basis in 2023. This year, our number one priority is to grow Xtamsa ER and Belbuca prescriptions. The entire commercial organization is taking specific actions to differentiate our portfolio and fuel growth. These actions include the following. Launching new promotional campaigns and educational resources for our sales teams to use during interactions with HCPs and pharmacists. Launching new digital and non-personal promotional content. which reinforces the clinical differentiation of Xtamsa ER and Belbuca. Launching new personal and non-personal promotional tools to pull through the strong access positions of Xtamsa ER and Belbuca. And supporting payers as they ensure that the value of Xtamsa ER is clearly understood, enabling stronger formulary controls where Xtamsa ER is exclusive. We're holding a national sales meeting in March. where we'll bring the entire commercial organization together to reinforce our brand strategies and messages with the goal of strengthening the impact of their customer engagements. The commercial organization is focused on winning in managed care. The strategy begins with working with payers to pull through the strong access positions that we have for Xtamsa ER and Bell Buca. In addition, and relative to Xtamsa ER, Following the successful completion of the first wave of contract renegotiations to drive gross to net below 65%, we're looking to opportunistically secure new payer wins, which can serve as a catalyst for prescription growth, while ensuring gross to net below 65% going forward. We plan to successfully renegotiate the contracts expiring this year, which represent about 30% of all extant CER prescriptions. Our goal is to maintain access for Xtamps ER while improving profitability, leveraging the clinical differentiation that Xtamps ER has demonstrated to these plans over time. For Belbuca, in addition to pulling through the broad commercial access, our priority is to improve access in Medicare Part D. We believe that the clinical differentiation of Belbuca warrants broader coverage within Medicare Part D, and we're actively engaging with payers to find a path to better access for patients. We currently have a high level of engagement with payers discussing the clinical value of Xtamsa and Belbuca and the difference both products can bring to patients. I'm encouraged by the level of engagement so far. In closing, our priorities in 2023 are crystal clear. Grow Xtamsa ER and Belbuca and win in managed care. I'm confident that we will achieve phase three of our action agenda, accelerate, in 2023. I'll now turn the call back to Jeff.

Thanks, Scott. We are making significant strides as we build a leading, diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions. 2022 was a pivotal year for Collegium, marked by several significant financial and strategic accomplishments. I'm encouraged by the start of the year as we execute on phase three of our action agenda, accelerate. I'm confident that 2023 will be a banner year for Collegium. I will now open the call up for questions.

Operator. Thank you. And ladies and gentlemen, at this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. you may press star followed by two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from David Emselem with Piper Sandler. Please state your question.

Hey, thanks. So just had a couple. So first, Joe, you had talked about continued renegotiations um regarding um payer contracts for extams and not continued but uh but but new renegotiations um that could affect the gross to net um beyond this year and what i'm what i'm trying to better understand is you know how much better can it get from the current 61 to 63 percent that you're guiding to and uh and just give us a refresher on what kind of plans you're renegotiating with going forward. Are they Medicare Part D? Are they commercial? They're a mix of both. So that's the first question. And then the second question is on business development M&A. So you talked about delevering. So the question I have here is how much would you lever up to acquire commercial stage assets? So what would you know, pro forma net debt he would look like or how far would you go to execute on the acquisition of an asset or more than one asset? Thanks.

David, thanks for the questions. I'll take the first one and then hand the second off to Colleen. So with regards to Xtamsa ER renegotiations this year, we have an additional contract that account for an additional 30% of lives. are of extant CR prescriptions. Unlike last year, where we made a strong commitment to get gross to net to less than 65%, we're not going to do that this year for the following reason. And that is we're really focused on this year, in addition to those renegotiations, trying to secure new wins. which obviously we now have the headroom with what we accomplished in 2022, along with the additional 30% that we'll be renegotiating to secure wins at rates that we're comfortable with and stay below that 65% threshold that we are forever committed to. So the way to think about it is, you know, it will be a balance of if we're able to achieve new wins relative to what we accomplished in the renegotiation, If we didn't achieve any new wins, it would certainly have a net benefit or positive impact on our gross to nets as we move in to 2024. And then to the final part of your questions, the contracts we're renegotiating this year skew to commercial plans. And then Colleen.

Thanks, David. On the leverage question, so in seeking a commercial stage asset, we would be willing to go up to pro forma net debt to EBITDA of four times. And then I imagine we would do the playbook of quickly delivering thereafter.

That's helpful. Can I sneak in a follow-up, Joe? On the gross to net and the renegotiations, I mean, is it fair to say that just based on your comments that, you know, we could see a scenario next year where there's gross net stability versus 2023, but with some new wins that could help drive greater volume growth. I mean, is that one plausible outcome regarding what you're trying to accomplish here? Yeah, that's certainly a plausible outcome, David.

Look, as a leader in responsible pain management, With both Xtamsa and Belbuco, which we believe deeply are products that can make a meaningful difference in the lives of people living with pain and contribute in a positive way to making a difference in the opioid epidemic, we will do everything that we can to broaden their access positions. And we believe in the case of Belbuco and Medicare Part D, from an Rx basis, there are certainly catalysts there if we're able to be successful for growth. in 2024 and beyond, and in the case of Xtamsa ER, there is still room that if we're able to secure wins, where there are also catalysts that would have a very positive impact on prescription growth on 2024 and moving forward. Okay. That's helpful. Thank you. You're welcome. Thanks, David.

Our next question comes from Tim Lugo with William Blair. Please state your question.

Hi, this is John on for Tim. Thanks for taking our question and congrats on a successful 2022 and looking forward to an exciting 2023. So I know recently you've been discussing how some additional education is required around Delbuca's profile to accelerate growth of that franchise. Can you just talk to us a little bit about how those efforts are going and how you see the growth of the Delbuca franchise ramping up through 2023 as those efforts come together? Thanks.

Sure. Thanks for the question, John. I'm going to ask Scott to answer.

Yeah, thanks, John. Yeah, so when we look at 2023 and kind of the performance trend and where we're heading, what we believe is on a full-year basis we're positioned for growth. And the reason related to your training comment is, you know, last year with the acquisition of BDSI, we went through a lot of disruption. There was a lot of learning around the brand. And what I'd say is similar to what I articulated in the fourth quarter call, like we're starting to get our sea legs under us. Our people are stable in their territories. Our sales reps are comfortable with the brand. And so for those reasons, combined with the other commercial actions we're taking in 2023, that's why we believe on a full-year basis we can see growth for Bell Buco.

All right. Thanks so much for that, Tyler. Thanks, John.

And our next question comes from Brandon Folks with Cantor Fitzgerald. Please state your question.

All right, thanks for taking my questions and congratulations on all the progress this year. Oh, it's big about 2022. Scott, thanks for the details on the Xtamsa and Belbuca prescription growth drivers. Can you just elaborate how you see the addressable market evolving? You know, I think we continue to see the headwinds in the Xtamsa and branded OxyContin ER market. So just any color there, just in terms of how you view the overall market, I guess, with Xtamsa and Belbuca um, checking out this year and maybe going forward.

Yeah, Brandon. So this is Joe. I'll start on that. And then Scott may have some additional perspective to provide. Look, when we, when we look at extamps, the ER and Bell Buca, the first thing that I would emphasize is we think there is plenty of room within the market for both of these important differentiated brands to continue to grow. When we look out at the market over the next five years, we believe that you'll start to see a moderation of the decline going to the mid to low single digits. I think the strongest piece of evidence to support that would be where now we would be approaching upon the use of opioids of the early 2000s, which was significant of when pain was called out as a fifth vital sign. What we know for sure isn't going to change, unfortunately, is the number of people who are experiencing pain that have chronic pain and the high intensity nature of which opioids will continue to be a cornerstone of therapy. So from a, you know, oxycodone portion of the market, we are not concerned. We are focused on replacing oxycontin utilization. And then as you know, the buprenorphine portion of the market is growing, and certainly we believe Belbuca is a differentiated Schedule III product, in particular relative to Butrans from a dose-ranging perspective. So we think the dynamics are there for continued growth.

Yeah, I think you hit it, Joe. The only other thing I'd add is a reminder that the biggest feeder pool to the growth of both Xtamsa and Belbuca is the IR to ER transition in the IR market, which is still very large. with many patients being treated for their pain. So there's tremendous opportunity for us to grow.

Thanks very much. And that's actually going to be my follow-up. You kind of touched on it, but do you expect that feeder pool to change or evolve at all over the coming years? And that's it for me. Thank you very much.

No, I don't think we anticipate any changes in the dynamic portion of the market.

Great. Thanks very much. And congrats on the progress. You got it. Thank you.

Our next question comes from Serge Bellinger with Needham & Company. Please state your question.

All right. A couple questions for us. First one may be on recent market dynamics. I think one of them headwinds for most of 2022 was kind of a slower pace of office visits that led to an unfavorable business mix. Just curious if that has changed over the fourth quarter and in the early... You kind of hit the boxes that you're looking to tick off as you look for assets, but in terms of therapeutic areas that you're targeting, should we still expect that You could do a third transaction in the pain space, or there's still assets remaining that kick off those categories that you talked about. Thanks.

Yeah. Hey, Serge, if you could do me a favor, and I apologize for this. You were coming in and out, and I'm not sure we clearly got your two questions. So if you wouldn't mind repeating them.

Sure. I'll start with the first one. Is this better? yes okay so the first one was about the uh recent market dynamics uh one of the headwinds in 2022 was the pace a slower pace of office visits leading to an unfavorable business mix curse if that has improved and whether an improvement is embedded in the um in the guidance and in plans to grow extanza in belvica okay

And Scott, we'll take that question. Yeah, thanks, Serge. So look, since the last time we talked, I mean, no, we haven't seen an improvement in terms of patients' returns. But I think what's important is that's just the market we play in now. And so to your question around guidance, no, our guidance doesn't contemplate any type of return of the market, right? We just view it as now this is the market we play in. And really, from a focus standpoint, look, we're not focused on the external factors like that that we can't control. we're focused on the internal factors, and that's around commercial execution of our people and changing behavior. So that's where our focus is, and we'll keep monitoring what happens externally.

Okay. And the question on VD, the second question, was... Wait, Serge, you just broke out again. Okay.

Sir, could you pick up your handset? Maybe we'll get a better sound that way.

All right.

Okay, so we're going to move on to the next question. Mr. Bellinger, just press star 1 again and pick up your handset to ask your question. Thank you. Our next question comes from Greg Frazier with Truist. Please state your question.

Hey, guys. Thanks for taking the questions. Hopefully you can hear me okay. Yep. When do you believe your commercial initiative is behind Expanse that could return the positive year-over-year prescription growth? You mentioned growth to the full year for Expanse and Belvega. I'm curious how long or how quickly do you think you can get back to positive growth for prescriptions?

Yeah. So, Greg, this is Joe. I appreciate the question. Look, I'm not going to prognosticate on that. What I would say to you is we believe on a full-year basis. Both Bell Buca and Xstamps ER will grow prescriptions in 2023. As I said in my prepared remarks, I'm encouraged by the start we're off to in 2023. And I would say at this point, there's no surprises. Everything is tracking in line to our expectations.

Got it. Okay.

And can you talk a bit more about the initiatives to expand parking coverage for Bell Buca? Are you seeking to sign contracts this year that will help next year and beyond? And will you try to maintain the gross to net below a certain level as you add Part D lines?

Yeah, so I'll pass that question off to Scott.

Yeah, thanks, Greg. So, yeah, so for Bell Buick, it's very straightforward. I mean, as we look at this portfolio that we've acquired, I mean, BDSI did a great job managing Bell Buick and managing the gross to net. What we see as the leader responsible pain management is, People need access to this product, and Part D is an avenue for that. So it's early. We're engaged with payers. We're telling the clinical story of buprenorphine overall and belbucan, the differentiation versus the patch, and we'll see where those conversations go. If we are to win in one of those plans, it would be for 2024, right? So we don't see that as something that would happen mid-cycle and believe that we can do it in a way that's controllable when it comes to the gross to net to your question there.

Got it. Okay. And then just my last question is on the recent CDC recommendations for opioid prescribing. I'm curious if you think whether those recommendations will help boost prescribing or not. Thank you.

Yeah, Greg. So, look, I appreciate the question. I think the commentary I'd give on the CDC guidelines is we're glad to see experts step back and look at what it is the original guidelines, the impact of them, and providing the necessary clarity for physicians as they treat patients who are living with pain in the most responsible way possible. So I would keep our comments focused to there and what's most important for the care and treatment of the patients. And I don't think from a business perspective there's any impact that we'll see as a result of that. Got it.

Thank you.

You're welcome. Thank you, Greg.

Thank you. And a reminder to the audience, if you'd like to ask a question at this time, press star 1 on your telephone keypad. We'll pause for a moment to see if there are any additional questions. Thank you. Thank you. There appears to be no additional questions. I'll hand the floor back to Joe Cioffoni for closing remarks. Thank you.

Thank you. And thank you, everyone, for joining the call today. I look forward to updating you on our progress throughout the year, and I hope that everybody has a great evening. Thank you. And with that, we conclude today's conference call. All parties may disconnect.

Have a great evening.