Collegium Pharmaceutical, Inc.

Greetings and welcome to the Collegium Pharmaceutical fourth quarter and full year 2023 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 call, 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 2023 earnings conference call. I'm joined today by Joe Schifoni, 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 made 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 on 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 Schifoni.

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 2023 and our focus on operational execution in 2024. As we build a leading diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions, we strive to do good as we do well. We are proud of our partnerships with organizations to drive equitable access to STEM education in underserved communities. As part of this commitment, we recently launched the Collegium Pharmaceutical Scholarship Program for which we will award two full scholarships to Massachusetts-based high school seniors pursuing a STEM-related major at a U.S. university. We are proud to provide this opportunity to students who have demonstrated financial need, academic achievement, leadership, community service, and a commitment to learning as they pursue a career in STEM. Also, yesterday we published our 2023 ESG report which reflects our commitment to operating with responsibility, integrity, and purpose. I encourage you to read the report on our website. I'd also like to recognize the Collegium team for their commitment to our mission and for their contributions and accomplishments in 2023. 2023 was a banner year for Collegium Pharmaceutical. We delivered on our financial commitments and executed our capital deployment strategy. Key accomplishments in 2023 include we delivered record revenue and record adjusted EBITDA. We returned Belbuca to sequential quarterly prescription growth starting in Q2 2023 and saw year-over-year quarterly growth in Q3 and Q4. In the fourth quarter, Belbuca total prescriptions grew 3.2% compared to Q4 2022. We expect to see Belbuca prescription growth in 2024. We successfully renegotiated a major Medicare Part D plan accounting for 12% of Belbuca prescriptions, maintaining access, and materially rolling back rebates. This will result in year-on-year gross to net improvement. We also want new Medicare Part D plan representing approximately 1 million covered lives. We improved Xtamsa ER gross net in 2023 to 59.6%, a decrease of 9.7 percentage points over 2022. We successfully renegotiated contracts representing 30% of all Xtamsa ER prescriptions, maintaining access and improving rebates in 57% of plans. We expect to see gross net improve to 56 to 58% in 2024. We received new patient population exclusivity for Nuscenta, extending the period of U.S. exclusivity from June 27th, 2025 to July 3rd, 2026. We submitted a pediatric extension for the Nuscenta franchise in December that if approved will extend exclusivity of the franchise an additional six months. We expect a decision in the second half of 2024. The new patient population exclusivity for Nusenta, together with the potential pediatric extension for the Nusenta franchise, bolster our outlook in 2025 and 2026. We executed our capital deployment strategy, paying down $162.5 million in debt and returning $75 million in capital to our shareholders through our share repurchase program. and we ended the year with over $310 million in cash and marketable securities. Our record financial performance and operational achievements in 2023 position the organization for success in 2024 and beyond. We expect to deliver record revenue, adjusted EBITDA, free cash flow, and net income in 2024. In 2024, top-line growth will be fueled by Belbuca and Xtamsa ER. We are encouraged by the Belbuca prescription growth we saw in the fourth quarter of 2023, and we expect to see full-year prescription growth in 2024, along with gross-to-net improvement. Over the past two years, we renegotiated contracts representing 84% of all Xtamsa ER prescriptions, maintaining access, and rolling back rebates in 77% of plans. This is a major accomplishment, that will fuel extensive ER revenue growth in 2024. We expect gross net to improve to 56 to 58%. The team is working hard to mitigate anticipated pressure on prescriptions. The Nuscenta franchise is a key contributor to our pain portfolio. We do expect some pressure on Nuscenta franchise revenue in 2024 because of the American Recovery Act eliminating the Medicaid cap. Beginning in 2025, through loss of exclusivity, we expect to be able to deliver relatively stable year-on-year results. The new population exclusivity achieved for Nuscenta in 2023 and the anticipated pediatric extensions for the franchise in 2024, along with a reduction in the royalties we pay on Nuscenta franchise sales from 14% to 7% beginning on June 27, 2025, bolster our outlook for the franchise in 2025 and 2026. In 2024, our focus is on operational execution. We are committed to achieving our financial objectives and deploying capital to create long-term value for our shareholders. We aim to achieve record financial performance while rapidly paying down debt, and returning capital to our shareholders by opportunistically leveraging our $150 million share repurchase program. I am confident that we are well positioned to deliver on our financial and capital deployment objectives. I will now hand the call over to Colleen to discuss the financials.

Thanks, Joe. Good afternoon, everyone. 2023 was a banner year for Collegium in which we achieved all of our financial objectives. We generated record revenue and adjusted EBITDA on both a quarterly and full year basis. We maintained our financial discipline and leveraged our strong cash flows to execute on our capital deployment strategy. Financial highlights for the fourth quarter and full year include net product revenues were a record $149.7 million for the fourth quarter, up 16% year over year. 2023 net product revenues were a record $566.8 million, up 22% year-over-year. Bill Buchan net revenue was a record $49.3 million in the fourth quarter, up 17% year-over-year, and a record $182.1 million in 2023, up 44% year-over-year. 2023 sales reflect a full year of revenue compared to a partial year of revenue in 2022 due to the timing of the BDSI acquisition. For the fourth quarter, Xtamsa ER net revenue was a record $48.5 million, up 38%, and Xtamsa ER gross to net was 54.5%. For 2023, Xtamsa ER net revenue was a record $177.4 million, up 28% and a gross to net was 59.6%. We expect XAMSA ER gross to net to be in the range of 56 to 58% in 2024 as a result of the successful contract renegotiations we completed in 2023. Nusenta franchise net revenue was $46.9 million in the fourth quarter, down 2% year-over-year, and $190.8 million in 2023, up 3% year-over-year. GAAP operating expenses were $32.9 million in the fourth quarter, down 13% year-over-year. For 2023, GAAP operating expenses were $159.2 million, down 10% year-over-year. Non-GAAP adjusted operating expenses were $25.9 million in the fourth quarter, down 20% year over year. For 2023, adjusted operating expenses were $123.6 million, up 1% year over year. GAAP net income for the fourth quarter was $31.9 million compared to a net loss of $7.2 million in the fourth quarter of 2022. For 2023, net income was $48.2 million compared to net loss of $25 million in 2022. Non-GAAP adjusted EBITDA was a record $104.2 million for the fourth quarter, up 36% year over year, and a record $367 million for full year 2023, up 38%. Gap earnings per share was 99 cents basic and 82 cents diluted in the fourth quarter compared to gap loss per share of 21 cents basic and diluted in the prior year period. Gap earnings per share was $1.43 basic and $1.29 diluted in 2023 versus gap loss per share of 74 cents basic and diluted in 2022. Non-GAAP adjusted earnings per share was $1.58 in the fourth quarter versus $1.09 in the fourth quarter of 22. For 23, non-GAAP adjusted earnings per share was $5.47 versus $3.96 in the prior year. Please see our press release issued earlier today for a reconciliation of GAAP to non-GAAP results. In 2023, we generated robust operating cash flows of $274.7 million and ended the year with cash, cash equivalents, and marketable securities of $310.5 million. For the year, Collegium paid down $162.5 million in debt, ending the year with leverage of approximately one times net debt to adjusted EBITDA. We are encouraged by our strong performance in the fourth quarter and full year 2023. We achieved our financial goals for the year, growing adjusted EBITDA at more than one and a half times the rate of revenue, increasing our cash position, and positioning us to deliver on our financial commitments in 2024. We reaffirm our 2024 financial guidance, which we announced earlier this year. We expect net product revenues in the range of 580 to 595 million. We expect adjusted operating expenses in the range of $120 to $125 million and adjusted EBITDA in the range of $380 to $395 million. We are confident in our ability to deliver on our financial commitments in 2024. We are focused on creating long-term value for our shareholders through our capital deployment strategy. We are rapidly paying down debt and plan to opportunistically return capital to shareholders through share repurchases. We are locked into rapidly deleveraging the balance sheet, paying down over $180 million of debt in 2024, which would put us at de minimis net debt to adjusted EBITDA ratio at year end. Our ability to delever quickly is a testament to our strong cash generation. We have a strong track record of returning value to our shareholders. Since 2021, we've returned $137 million of capital to our shareholders at an average price of $21.65 per share through a combination of open market and accelerated share repurchase programs. In 2023, we repurchased $75 million through accelerated share repurchase programs, including $25 million repurchased at an average price per share of $27.09 since November. In January, our board authorized a new share repurchase program to repurchase up to $150 million in common stock over 18 months. We believe that our stock continues to be undervalued, and we view our share repurchase program as a productive use of our capital to generate high returns for our shareholders. I will now turn it over to Scott to give a commercial update.

Thanks, Colleen. At Collegium, we're proud to be the leader in responsible pain management. Belbuca, Xtamsa ER, and Nuscenta ER have a combined 50% share of the branded ER market. Our pain portfolio is highly differentiated, and our commercial organization is focused on maximizing the potential of our products to have a positive impact on the lives of people living with pain and the communities that we serve. We ended 2023 with momentum across the pain portfolio. Belbuca and Xtamsa ER are well positioned for growth in 2024, and the Nuscenta franchise will be a key contributor. In the fourth quarter, Belbuca total prescriptions grew 3.2% year-over-year and 1% quarter-over-quarter, continuing the sequential quarterly growth that started in the second quarter of 2023 when we inflected the prescription trajectory of Belbuca. As the leader in responsible pain management, we believe that Schedule III products should be used before Schedule II and used more broadly. We're encouraged that the buprenorphine market continues to grow. We believe Belbuca is uniquely positioned because of its clinical differentiation as a Schedule III product with a broad range of doses for the management of severe and persistent pain that requires an extended treatment period. Our commercial accomplishments in 2023 position Belbuca for growth in 2024. Stronger commercial execution drove sequential quarterly growth beginning in the second quarter of 2023. We expect Belbuca to benefit from improved commercial execution, the successful renegotiation of a major Medicare Part D contract, and the addition of a new Part D plan representing approximately 1 million covered lives. Our focus in 2024 is on strengthening our commercial execution in support of Belbuca, specifically investing in the knowledge and training of our field force, pulling through Belbuca's strong commercial access, and improving push-through in Medicare Part D. Importantly, we'll work on expanding Medicare Part D coverage for Belbuca, It's the right thing to do, and if successful, will serve as a catalyst for growth in 2025 and beyond. Turning to Xtamsa ER, in 2023, we delivered record revenue driven by significant gross-to-net improvement. Our successful contract renegotiations with plans that accounted for 54% of Xtamsa ER prescriptions in 2022 reduced gross-to-net by 9.7 percentage points, offsetting pressure on prescriptions. We expect a continuation of that dynamic in 2024, based off our successful renegotiation of contracts representing 30% of all XtampsER prescriptions in 2023. Our focus with XtampsER in 2024 is on challenging the status quo with healthcare professionals. XtampsER has strong data in its label differentiating it from OxyContin, and it has superior access in both commercial and Medicare Part D. Our aspiration with Xtamp CER is to replace OxyContin utilization for appropriate patients. In managed care, we need to pull through our strong access positions in commercial and Part D, and importantly, strive to achieve new wins. We have the ability to achieve new wins and forever manage gross to net to less than 65%. The Nucenta franchise is a key contributor to our pain portfolio. Cepentadol is a differentiated molecule with a proposed dual mechanism of action. It's viewed favorably and is highly differentiated by healthcare professionals. Our market access strategy enables us to manage the new Cinta franchise contribution in a relatively stable manner year on year, beginning in 2025 through loss of exclusivity. In closing, I'm proud of our commercial accomplishments in 2023 and focused on achieving our objectives in 2024 through operational execution. I'll now turn the call back to Joe.

Thanks, Scott. 2023 was a banner year for Collegium Pharmaceutical. Our accomplishments in 2023 position the organization for success in 2024 and bolster our outlook in 2025 and 2026. Our focus in 2024 is on operational execution. We expect to deliver record financial performance, and we are committed to deploying capital to create long-term value for our shareholders. I will now open the call up for questions. Operator?

At this time, we will 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 two if you would like to remove your question from the queue. We ask that you limit your questions to one and a follow up so that others may have an opportunity to ask questions. 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 Amselim with Piper Sandler. Please proceed with your question.

Hey, thanks. So one question on Xtamza and then one on BizDev M&A. On Xtamza, with the contract renegotiations mostly in the rearview mirror, I guess the question here is as you look at the long-term landscape, for the product, do you think that you can at some point return it to meaningful volume growth? And then to the extent that you think you can, talk through what kind of commercial efforts you're going to undertake to do so. So that's number one. And then on biz dev, can you just talk through your latest thoughts on asset prices and the relative attractiveness of assets that are out there, what you're seeing in terms of the landscape. And I think in the past you've talked about being agnostic to various therapeutic verticals. Can you just talk to your latest thinking regarding that? Thank you.

Yeah. So, David, this is Joe. Thank you for the questions. I'm going to start off on Xtamsa and then kick it over to Scott and then come back and address BizDev. First off, with Xtamsa, the thing that we are confident in is our ability to continue to grow revenue as we move forward through 2033 with the asset. Where we're at now is it will be a year-to-year situation based off of what it is that we accomplished. in the payer landscape. We now have significant headroom where we're under, to be under that 65% that we're forever committed to managing gross to net. That gives us the ability to really go after and try to achieve new wins for the product. And then of course, contracts come up for renegotiation typically every two to three years. So there's fewer this year, but there will be new ones as we move forward where we think there will continue to be opportunity to manage gross to net. And Scott can talk about some of the commercial efforts and things to make that happen.

Yeah, thanks, David. So first what I'd say is we have very strong access in commercial and Part D for Xtamsa. And what that means is First and foremost, we can grow organically. There's plenty of room to still grow through pure execution. As I mentioned in my prepared remarks, our focus is on displacing OxyContin for appropriate patients. And how we do that is by challenging the status quo. And so what we're doing is similar to what we've been doing for Bell Buca, right, training our people, practicing, and showing up in front of the customer to change behavior. And by doing that, I'm confident we have the ability to grow organically where we have access, and then we'll see, as Joe said, what happens with the payer as we move forward.

And then, David, from a business development perspective, What I think is important to emphasize is, one, our confidence in the financial strength of the business. You know, we continue as we execute versus the core business and financially what we're setting out to do, along with the improvement each quarter on the balance sheet to further strengthen our position. And what that gives us is the ability to be clear-headed from a BD perspective. So what I would comment specific to your question is is, look, everything that we have been engaged with continues to be on the board. We will wait for people to come to rational positions. And when the value is there, we continue to be in a strong position to strike. And I'm confident we will get the right deal done. For Collegium, from a therapeutic perspective, we want to be agile because we think there are a significant number of opportunities out there. And I'd reiterate what we're focused on are commercial stage acquisitions only. We want differentiated assets. We think that's critical for reimbursement, 150 million peak sales and exclusivity into the 2030s. Okay.

Thanks, Joe. Thank you.

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

Hey, guys. This is Lachlan on for Tim. Thanks for taking the questions and congrats on the strong quarter. The first question is just wondering if we should expect any changes to discounting or the cadence of discounts this year with Medicare Part D redesign? And then second is, given the shift to parity for a number of exams and contracts in 2024, can you remind us sort of how prior parity contracts have performed and if there are any differences between the dynamics or the timing of discounts or anything like that over the course of the year?

Okay. Thanks, Lachlan. Colleen will take the discounting questions, and then Scott will talk about our positioning within managed care and answer that question.

Lachlan, thanks for the question. I would say as far as the cadence and the seasonality of discounting in gross-to-nets overall, in 2024 it will be relatively similar to what we've seen in prior years, which is you have the most favorable gross-to-net positions, particularly for an extensa-type product in first quarter. And then you have the impact of coverage gap in second and third quarter, or the donut hole, as it's also known, and then it bounces back in the fourth. So we expect that to continue for another year in advance of any additional redesign in 2025.

And then, Lachlan, to your question about parity positioning, so Look, in parity, we've had one major parity position before now, and now we have a few more. And what we know is there's ample opportunity there to grow. We have plenty of market share left to grow in those positions.

And Lachlan, I would just add, with regards to the renegotiations in general, where we have maintained access, we are not in parity positions. And the only instances in which we are now at parity with OxyContin is generally where we've come off the formulary. And I think from that perspective, the clinical profile of Xtansa is a differentiated asset. And as the leader in responsible pain management, we are the only ones out there educating physicians on our products.

Our next question comes from Serge Belanger with Needham & Co. Please proceed with your question.

Hi, good afternoon, and thanks for taking my questions. First one, I guess, for Scott on Xtamza. I think so far this year we've seen about a 6% prescription erosion for Xtamza. I'm curious if that's what you were expecting and if you expect for those to come back And then second question is for Joe, uh, regarding BD, um, I think BD transaction has been a priority for the company now for, I think since 2022, as your view or strategy around that priority evolved. And, um, also as part of that question, I guess, um, in the past, you've talked about wanting to lever up for such a transaction. So also curious with the recent share price appreciation, whether you would purchase via equity to complete a transaction. Thanks.

Thanks, Serge. Scott, we'll take the first, and then Colleen and I will share the second.

Yeah, thanks, Serge. Yep, in simple terms, yep, where the brand's performing right now is right in line with where we'd expect it to be. And similar to last year where we were removed, the greatest impact tends to be in the first quarter as we move then throughout the year.

Yeah. And Serge, with regards to BD, what I would start with is capital deployment. What we're really focused on right now is what we know we're going to do, which is we're going to rapidly pay down our debt and we will opportunistically leverage our share repurchase program. One of the things we take a lot of pride in is our track record of being really good stewards of capital and executing deals that make sense and deliver value for our shareholders. So as we continue to get stronger, what I can tell you is when the right deal is there at the right price, we are in a great position to execute. And Colleen can talk a little bit about how we think about the financial aspects.

Yeah, so Serge, great question on the leverage side. What I would say is we have the ability to raise debt and are comfortable with a net debt ratio of around three times or below for commercial stage asset, which is what we're seeking in the current environment. I would also say given our commercial focus, we are focused on near-term assets. accretive and positive EBITDA. And as noted, we also have the ability to use our equity if the market dynamics are supportive. So we think we have a multitude of options there to fund the right deal when it comes along.

Thank you.

Thanks, Serge. Our next question comes from with Truist. Please proceed with your question.

Thank you, and congrats on the quarter, guys. Just to take another stab on the BD opportunity, you have mentioned in the past of $150 million in peak potential sales. Is there a potential where you could see a few smaller deals versus a one chunky one or something that would be pre-approval in terms of an asset play?

Yeah. Thanks, Les. I appreciate the question. Well, from a BD perspective, I think what I would reiterate is everything that we have been focused on continues to be on the board, and I think they all fit the criteria of what it is that we're looking for. Differentiated commercial stage assets, peak sales potential greater than $150 million with exclusivity into the 2030s. The one commentary I would make is that doesn't mean like the deals we've done previously, they already need to be at $150 million. So we, for the right opportunity, if we have conviction that it can be $150 million plus, then we're in a great position to execute around that. And if one of the reasons why we're the better owner is because of the resources that we can bring to the table, we would go for that type of opportunity.

Got it. And if I might squeeze one follow-up. On the capital deployment plans, you know, potentially outside of repurchases, have you specifically looked at a potential enactment of a dividend plan or any sort of payout of a form of a one-time special dividend? Thank you.

Yeah. Les, I appreciate that question. I'm going to hand that one off to Colleen.

Yeah, Les, we evaluate all options, but we highly prefer the share repurchase program over dividends. And you can see that continue in the near future.

Our next question comes from Oren Livnat with HC Wainwright. Please proceed with your question.

Thanks for taking the questions. I have two. On extamsa, I find it interesting that you mentioned your large headroom now between, I guess, your 56 to 58 gross net guidance and, I guess, this theoretical ceiling that you want to maintain at 65. Can you talk about how big potential opportunities, you know, even if not exactly near term, but the next couple of years you might have to add volume opportunities that would still keep you all under that. Cause we obviously don't see the mix between, you know, Medicare plans, Medicaid, et cetera. You know, for example, something as gargantuan as a silver scripts realistically on the table at a gross to net, that would still keep you under that 65%. And I have a follow-up. Thanks.

Yeah. So, Oren, this is Joe. I appreciate that question. Look, one, you're correct. We have a lot of headroom to go out and win new plans. How that comes together year to year is something we'll provide an update on. And you're also correct. If you think in Medicare Part D, there are some major plans that have significant OxyContin. And what I can tell you is if there's a path to getting that accessed, that makes sense, then we want to, as a leader in responsible pain management, open that up for physicians and appropriate patients. And then you can also look from a commercial perspective where I'd say it's more a mile wide and an inch deep, but where you can piece together plans to position Xtamsa to continue to grow volume as we move forward. The key thing that I would emphasize in closing here is what we are confident in is the ability, whether it be through the addition of new profitable contracts that would be a catalyst to volume, and or as we continue to renegotiate contracts moving forward, that we'll be able to continue to grow Expanse ER revenue. But now it will be more year-to-year when we provide an update on how it is that that's going to happen.

Okay. And on Delbuca, I guess now that that's your largest product and what appears to be our fastest growing product, which certainly reflects well on that acquisition, or the fruits of that acquisition, can you talk a little bit longer term now how you view that? Because, you know, certainly I model, and I think the conservative or most conservative assumption is to assume that goes away in 2027. But now that that's such an important product for you, can you talk about your view of on the longer runway for that, you know, potentially in 2027 beyond, whether it's with regards to an existing settlement, patent wins, and the current litigation landscape thing.

Yeah, so appreciate the question, Oren. Look, what I can tell you, number one, is the BDSI acquisition for Collegium was an excellent deal and one that the team has done an exceptional job executing around. I think Scott and his team deserve a tremendous amount of credit because one of the things that's most encouraging here at the start of the year is the prescription trends that we're seeing. So we really have a strong view that we'll grow prescriptions this year, and Belbuque is certainly a product that's worthy of that. From a IP perspective, what I would say to you is the following. Our base case when we did the BDSI acquisition is we assume a potential generic in 2027. That's because there's a settlement in place with Teva. What I would say there is Teva has relinquished their first filer exclusivity. They do not have a tentative approval. The second ANDA filer was Alvagen. For us, the green light to execute the deal was when BDSI received a favorable rolling with regards to the IP, which from an invalidity perspective holds Bars Alvagen from the market until 2032 with that formulation. And then, of course, Chemo is the third antifiler who attached themselves to Alvagen from an invalidity perspective. They are pursuing non-infringement. And I would just say that they received their third CRL in the first half of 2023. We think it is very challenging to achieve the doses of Belbuca or all doses without infringing upon the IP. The final two points I would make is we have an authorized generic agreement with PAR Pharmaceuticals, and probably the strongest comment I could make with regards to our view of Belbuca is we will continue to invest through 2027 in support of this asset, because although our base case assumes generic, I think we need to see what happens and whether, you know, players do come to the market, in particular, Teva. All right. Thank you. Thank you.

There are no further questions at this time. I would now like to turn the floor back over to Joe for closing comments.

Thank you. And thank you, everyone, for joining the call today. We look forward to updating you on our progress throughout the year.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.