Greetings, and welcome to the Collegium Pharmaceuticals Second Quarter 2020 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alex Dasalla, Manager, Investor Relations and Corporate Communications. Thank you. You may begin.

Welcome to Collegium Pharmaceutical's Second Quarter 2020 Earnings Conference Call. This is Alex Dasalla, Head of Investor Relations for Collegium. I am joined today by Joe Ciaffoni, our Chief Executive Officer; Paul Brannelly, 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. You are cautioned that such forward-looking statements involve risks and uncertainties, including and without limitation: the impact of the COVID-19 pandemic; the risks that we may not successfully commercialize Xtampza ER and the Nucynta franchise; and that we may incur significant expense and may not prevail in current or future opioid industry litigation and investigations, patent infringement litigation, or other litigation pertaining to our products. These risks and other risks of the company are detailed in the company's periodic reports filed with the Securities and Exchange Commission. Our future results may differ materially from our current expectations discussed today. Our earnings press release and this call will include discussion of certain non-GAAP information. You can find our earnings press release, including relevant non-GAAP reconciliations, on our corporate website at collegiumpharma.com. I will now turn the call over to Collegium's CEO, Joe Ciaffoni.

Thank you, Alex. Good afternoon, and thank you, everyone, for joining us. Confirmed by Xtampza ER growth and the impact of the Nucynta acquisition, Collegium delivered strong financial results in the second quarter and made progress versus our strategic objectives. This is a testament to the resilience and adaptability of our people and operations and their commitment to making 2020 a transformative year for Collegium Pharmaceutical. Although the pandemic has forced our people to work differently, there has been no disruption to our essential operations and ability to supply the market. During this time, we have also been able to serve health care providers and patients. As of today, most of our home office-based employees are working on-site, and the majority of our field force is engaging in some level of in-person customer interactions. Although the productivity of our field force is steadily improving, as is the quality of customer interactions, it continues to lag pre-COVID levels. As states began to open, we saw signs that in-person patient visits were increasing, but we believe that momentum has been adversely impacted as infections increase in many states. We do not anticipate a return to normal for the remainder of 2020. Business highlights from the second quarter include: increased profitability; accumulated cash and paid down debt; grew Xtampza ER total prescriptions to 141,678, up 22% versus the second quarter of 2019; strengthened Xtampza ER's formulary position on the Optum RX national commercial formulary, which covers over 17 million lives. Effective July 16, Xtampza ER moved from being non-preferred to a preferred brand. This is the first major formulary position in which Xtampza ER is at parity with OxyContin. We continued to strengthen our patent estate with the addition of two new formulation patents covering Xtampza ER, one with an expiry in 2030 and the other in 2036. Xtampza ER now has 19 Orange Book listed patents. We announced the manuscript describing certain real-world evidence concerning abuse, misuse, and diversion of Xtampza ER was accepted for publication in Pain Medicine. We slowed the decline of the Nucynta franchise in the second quarter of 2020 versus the same period in 2019 and in comparison to the first quarter of 2020. We remained unwavering in our commitment to leverage, not grow, our cost structure. I would like to recognize and thank my colleagues for their commitment to making a positive difference in the lives of people suffering from pain and in our communities. I appreciate their ability to focus, adapt, and propel the organization forward in our quest to become the leader in responsible pain management. For the remainder of 2020, the organization will be focused on achieving our strategic priorities. They are: growing Xtampza ER and securing a pathway to market leadership; slowing the decline of the Nucynta franchise; leveraging, not growing, our cost structure; and executing our midterm growth strategy. Concurrently, we will be taking the necessary actions to prepare for success in 2021. Even in the face of COVID-19, Collegium Pharmaceutical is on track to make 2020 a transformative year. We expect to increase profit, accumulate cash, and pay down debt for the remainder of the year. Our organization is healthy, financially strong, and uniquely positioned to succeed. I am confident that we have the products, and most importantly, the people to make it happen. I will now hand the call over to Paul for a discussion of the financials.

Thanks, Joe. Good afternoon, everyone. With the closing of the Nucynta acquisition in the middle of the first quarter, this is the first full quarter that shows the impact of the Nucynta acquisition as well as our continued focus on financial discipline. During the second quarter, we generated $43.9 million in cash from operations and repaid $12.5 million of our term loan. Our June 30 cash balance increased by $29.5 million to $145.7 million from the March 31 balance. Total product revenue was $78.1 million for the second quarter of 2020. Xtampza ER revenue was $33.6 million, which is an increase of 29% from the second quarter of 2019 and an increase of 7% from the first quarter of 2020. The gross-to-net discount for Xtampza ER was 59.0% for the quarter. As discussed on prior calls, gross-to-net discount may be lumpy throughout the year and is expected to be in the low 60% range for 2020. Nucynta revenue was $44.5 million for the second quarter of 2020, which is a decrease of 1% from the first quarter of 2020. The decrease in Nucynta revenue was partially offset by an increase in wholesaler inventory of approximately one day. Excluding amortization of the Nucynta intangible asset, total cost of product revenues was $12.9 million for the second quarter of 2020, which is approximately 17% of revenue. This includes a 14% royalty to Grunenthal on Nucynta revenue. Operating expenses were $31.8 million for the second quarter of this year, which is a 6% decrease from the first quarter of this year. Our GAAP net income was $8.1 million for the second quarter of 2020 compared to a GAAP net loss of $4.7 million for the prior year quarter. Our non-GAAP adjusted income was $33.2 million for the second quarter of 2020 compared to $3.1 million for the prior year quarter. As you know, our historical practice is to provide annual guidance, and we are not committed to updating guidance on a quarterly basis. However, in light of the uncertainty in the market due to the potential impact of COVID-19, and given the visibility we have in our business, we are reaffirming our 2020 guidance that was provided on our Q1 earnings call. We expect Xtampza ER revenue in the range of $130 million to $140 million. Nucynta revenue in the range of $170 million to $180 million. Total operating expenses in the range of $120 million to $130 million, which includes stock-based compensation expense of approximately $20 million. Non-GAAP adjusted income in the range of $125 million to $135 million. And we expect to end the year with at least $180 million in cash while repaying $37.5 million of our term notes. Midway through 2020, we've made substantial progress towards making 2020 a financially transformative year for Collegium. I will now hand the call over to Scott for a commercial update.

Thanks, Paul. In the second quarter, having adapted to the COVID-19 pandemic, we made progress against our commercial priorities of growing Xtampza ER and slowing the decline of the Nucynta franchise. Xtampza ER achieved all-time highs for total prescriptions, market share, and total prescriptions per prescriber. Total prescriptions for Xtampza ER grew to 141,678, up 22% versus the second quarter of 2019 and 4% versus the first quarter of 2020. Xtampza ER extended-release oxycodone market share grew to 23.5% in the second quarter, up from 21.8% in the first quarter. The prescribing base for Xtampza ER was stable with 14,300 unique prescribers in the second quarter, and we achieved an all-time high of 10 total prescriptions per prescriber. We saw market share progression within exclusive accounts as ER oxycodone market share grew to 52% in June, up from a baseline of 40% at the end of 2019. We expect continued market share growth within exclusive accounts. And as a point of reference, Xtampza ER exited 2019 with a 63% OER market share within exclusive accounts. Nucynta franchise total prescriptions were 117,162 in the second quarter, representing a sequential decline of 2.8%, a significant improvement over the 6.1% decline in the first quarter of 2020. Nucynta ER branded ER share grew to 6.2% in the second quarter, and Nucynta ER has now had stable or growing market share for five straight quarters. COVID-19 has had an impact on our business in two significant ways: the decrease in live in-office visits that patients are making to their doctors and the decrease in accessibility of our sales representatives to their customers. First, regarding patient visits. As states began reopening in the second quarter, we saw in-office patient visits increase and corresponding increases in new-to-brand prescription volume. That said, as cases have begun to spike in some states, this return has been interrupted and is inconsistent, and it's not returned to pre-COVID levels. In-office patient visits are important to our business as most pain specialists would prefer to make a treatment change via a live patient visit. The decrease in in-office patient visits has a negative impact on the growth trajectory of Xtampza, which is more dependent on new patient inflow. Conversely, as a mature franchise, Nucynta is less impacted and may benefit from continuity of care. COVID-19 has also impacted the ability of our sales representatives to access healthcare professionals in person. Initially, their productivity was negatively impacted, but through the actions we've taken, we've seen an increase in quantity and quality of customer interactions. As states have reopened, most of our sales representatives have made a return to some level of in-office customer interactions. We expect our sales representatives will be executing a mix of in-office and remote customer interactions for the rest of the year with the majority being virtual. To help enhance the effectiveness of our sales representatives in these remote interactions, we've taken the following actions: We launched new e-detailing capabilities and remote selling training. We launched a new e-mail capability, which allows our representatives to send customized branded communications to their customers. We implemented on-demand resource shipping capabilities so they can send resources like co-pay cards and patient brochures to healthcare professionals. We increased the availability of digital resources on our brand websites. And we've increased our investments in non-personal promotion. On the payer front for Xtampza ER, our market access team is working with exclusive payer accounts to improve pull-through and accelerate market share. They're also working diligently to strengthen existing payer positions and secure new exclusive ER oxycodone formulary wins for 2021. We're focused on pulling through the new co-preferred position for Xtampza ER on the Optum national commercial formulary covering 17 million lives. This is the first major parity position for Xtampza ER, and we don't expect uptake to mirror what we see in exclusive accounts. It will be more protracted and will set a foundation for growth in 2021. We don't anticipate a return to normal in 2020, but through the actions that we've taken and focusing on operational execution, we believe we can achieve our commercial priorities of growing Xtampza ER and slowing the decline of the Nucynta franchise. With that, I'll turn the call back to Joe.

Thanks, Scott. I will now open the call up for questions.

Our first question comes from David Amsellem with Piper Jaffray.

First, regarding Nucynta, I'd like to hear your current perspective on how you're managing the difference between gross and net sales. You mentioned before that some contracts would not be renewed. Can you share your insights on how gross to net sales are expected to trend later this year and into the future? Secondly, concerning Xtampza, could you provide some qualitative details on how the pandemic has impacted your ability to capture more market share, particularly with the exclusive contracts established earlier this year? It would be helpful to understand the extent of this impact and what your position with Xtampza might look like without the pandemic's effects on market share.

Okay. David, this is Joe. Thanks for the questions. I'm going to share or tag team with Paul on the Nucynta question, and then Scott will take the question on the impact of the pandemic on Xtampza ER growth. So with Nucynta, it's probably early to give you granular information there in terms of what 2021 will look like. What I will emphasize is our strategy with Nucynta is essentially to try to accomplish three things. Where we can, we want to improve Nucynta's access, if possible, and if we can do it in a way that we feel is reasonable. The second thing that we're focused on that would have an impact on your question on gross to net is where contracts are expiring, we would love to be able to keep the product on those formularies, but in some instances, would only do so if we're able to negotiate a lower rate. And if we are in a position where we have to because of some of the contracts we inherited, we would, in fact, walk away from formulary positions if it didn't work or make sense for the franchise. And maybe Paul can speak to how to think about trending for the rest of this year.

For the rest of this year, we expect Nucynta to remain in the mid-50% range, 54%, 55% in that range for gross to net discount for the rest of this year. And I would anticipate that on our year-end call or Q3 is where through the contracting season that maybe we'd provide updated guidance on a go-forward basis at that point.

Yes. And David, thanks for the question on our growth for Xtampza and how the pandemic is impacting that. The primary driver of the impact is on patient visits. What we're seeing is still, if you look at patient visits that kind of bottomed out in the April/May time period, while there's been a little bit of improvement, still, they're down 30%, 40% versus pre-COVID time period. So that's the significant impact. What it means is it still affects basically new-to-brand capture. Period. What we're seeing there is also new-to-brand market volume in the OER market bottomed out in April/May. It's come back a little bit in the month of June, but still nowhere near pre-COVID levels. So we're fighting for market share. And as patients come back to the office, we'll continue to see some new-to-brand kind of rebound. Really, until patient visits are fully back, we wouldn't expect to be back to what we'd call pre-COVID capture.

And David, I would just emphasize; our expectation is that Xtampza will continue to grow on a sequential basis. The impact of the disruption in patient visits is ER to ER switching with the exception of when we have these exclusives isn't typical. That’s a very difficult thing. It doesn't seem like it would be, but that's something physicians want to do in person. That's where we've seen the impact on the ramp, and Scott gave you some of the stats around that.

Yes. No, that's very helpful. If I may just sneak in a follow-up on Medicare Part D and contracting there. Any significant updates or any updates on progress regarding getting in better positioning overall on the Part D front for Xtampza?

Yes. So, great question, David. The way I would answer that is, right now, we're in the midst of negotiation, waiting for final decisions as we look forward to 2021, both in commercial and Medicare Part D. I would say that we're encouraged, and I would expect to be giving an update on our November call, whenever we're doing Q3 or our Q3 call. I think that's when we'll really be able to answer the questions. But I think, look; we have demonstrated an ability to move market share when given those opportunities. The profile of the product is strong in terms of the clinical differentiation. So we're encouraged and look forward to providing an update on our next call.

Our next question comes from the line of Gregg Gilbert with SunTrust.

Joe, when you're excluded from a formulary, should we assume that you were offered something that was not acceptable or something else? There's obviously a lot of attention paid recently in such an example. I realize every case is different. But what would you like to say about that so that people can put it into proper context?

Yes, Gregg. So look, first thing, I appreciate the question. Certainly, we take a lot of pride in trying to, as a leader in responsible pain management, remove non-clinical barriers. I think when you look at the gross to net on Xtampza, you can see that we're being reasonable with a differentiated product, but we're also not going to give the product away. I believe you're referencing the change at Express Scripts that took effect July 1. The couple of comments that I would make as it pertains to that situation is the following: number one, that was an unprecedented decision and that no payer has ever removed Xtampza ER from their formulary. The second thing is, from a business perspective, it will be modestly positive for us in 2020. The reason for that is Xtampza was never on or was never preferred on the ESI national formulary. It was covered in a non-preferred position for which we were paying a discount. For the past five quarters, to put it into perspective, Xtampza average was flat, averaging about 420 TRxs per week. In making the decision, ESI communicated that because of COVID-19, they'll be grandfathering those patients. We do not anticipate that it will have a meaningful impact on prescriptions, but we won't be paying discounts on what we anticipate will be a relatively steady base. That being said, as a leader in responsible pain management, we're committed to continuing to work with all payers to remove non-clinical barriers. We are in active discussions with ESI. As recently as the end of June, we gave an updated clinical presentation to their clinical team, and we'll see how things evolve moving forward.

That's helpful color. On a different subject, have you made any more progress in getting removed from some of the opioid cases of which you're part, perhaps incorrectly in your view?

Yes. So look, another really good question. When you look at where it is that we're at, and this would be, I suspect, a positive, there's actually really no change. As of today, there are over 2,600 ongoing lawsuits. We're aware as of today that Collegium Pharmaceuticals is named in 27. Eight out of the 27 are in the MDL, but none of them are track or bellwether cases. Just for completeness, with regards to Nucynta, we don't assume any liability for promotion or sales that occurred prior to January of 2018.

Great. And my last question's on biz dev. You don't need to repeat what you've done in the past. You've been very clear about your criteria. My question is whether you've flexed that at all to include other areas that you think the company could be good at leveraging your existing infrastructure that are not as specific to the pain areas that you've highlighted in the past.

Yes. Great question, Gregg. So one, there's no change. We feel there are opportunities out there. We know what it is that we're focused on. We want to leverage the capabilities and the cost structure of the organization, and we believe there's opportunity to do that. The final point I would emphasize is, look, we are active, we're engaged, but we're also very confident in the in-line business, the strength of it, and the growth that we anticipate moving forward. So we're also looking for value. We're not going to do a deal just to be able to say that we did.

Our next question comes from the line of Serge Belanger with Needham & Company.

First question is about the new Optum RX formulary addition announced and your, I guess, a new strategy of co-preferred positioning. Can you just talk about how that will drive Xtampza growth? Is it still an ER to ER switch strategy? Should we think of this as a preliminary run to a potential exclusive positioning in the future?

So I'll start by just a reiteration of things you alluded to there, which is our overall strategy. So as we've stated in the past, our payer strategy has three legs. We haven't changed our strategy of driving exclusive formulary wins. So that's still one of our primary strategic objectives. We also have a strategy where we would add parity with an eye toward running into exclusive, as you just alluded to. For some accounts, large national ones like this, maybe parity access for the longer duration. We're still looking at those three strategic levers as we move forward. Now specific to Optum, we view this as a great opportunity midyear to get to parity. It's the first large parity position we have with OxyContin, and so we'll get a good understanding of how we can perform there and grow. We expect growth, but as I said in my prepared remarks, it'll be protracted. It'll be a longer run-in of growth and then will clearly set a good foundation for 2021 as well. We know it won't be like an exclusive, but we're excited to see what we can accomplish here. We'll see if it leads to other changes at Optum or if we continue to perform and grow at parity from here forward.

Okay. And then thinking of the second half of 2020 growth, clearly COVID, as you mentioned, has led to a significant decrease in patient visits. Have you seen an increase in telemedicine usage from this physician base? Could that be an avenue to where we could see additional Xtampza growth as COVID sticks around?

Yes, Serge, this is Joe. I'll take that question. What we're seeing in telemedicine, and this is supported by research that others are doing across almost all categories, it generates less new-to-brand and changes of prescriptions. So we think that's a great vehicle for physicians to care for their patients. But when you get to the switch of an otherwise stable OxyContin patient and that physician then changing their medication, that's not something we're seeing happening anywhere near the rate that it does when it's the in-person visit.

Our next question comes from Brandon Folkes with Cantor Fitzgerald.

Apologies if you did mention this. I've been hopping between a few calls. But could you just elaborate in terms of the funnel of patients you're seeing post the quarter end in July? And then maybe sort of some of the positive shifts that COVID has had on your business that could be longer-term tailwinds as we emerge from COVID.

Okay. Brandon, I'm going to hand those two questions off to Scott.

Yes. So Brandon, when you talk about the funnel and what we're seeing in the market. So when you talk about the funnel and kind of new-to-brand, basically what we're seeing is as COVID hit and the primary driver of the decrease was decreased patient visits, the new-to-brand market opportunity went down pretty significantly to the tune of 30% to 40% from a new-to-brand market standpoint. That flows right through to the product, especially Xtampza as a growth product. What we've seen is that kind of bottomed out in April and May. Then in June, there's been a little bit of a growth back, nowhere near pre-COVID levels. In early July, it's in line with what we're seeing in June. From your standpoint of the funnel of new-to-brand, it's down since pre-COVID, but there is some rebound from kind of the heart of the COVID season. That's what we'll be looking at as we go forward for the second half of the year.

And Brandon, one thing for portfolio completeness, Nucynta benefits from that dynamic as it leads to continuity of care. The other thing we saw in the second quarter is as in-person visits and procedures started to increase, not to the same degree of the IR market, but Nucynta IR benefited. Now remember with Nucynta IR, a far higher percentage is used in the treatment of chronic pain patients. That's why we continue to focus on slowing the decline, even though in some instances we're seeing trends a bit stronger than that.

Our next question comes from Dana Flanders with Guggenheim.

And Joe, I just wanted to circle back to your prior comments on the decision by Express to put Xtampza on the exclusion list. I guess that's just surprising to me given Xtampza's abuse deterrent properties and what seems to be clear benefits over Oxy. The question is, did Express come to a different conclusion on the real-world abuse deterrence of Xtampza and its value, or was this really around price? If you could also provide some context on what you're seeing on real-world abuse deterrence of Xtampza. Any color there you could provide would be helpful.

I'm not inclined to get into the discussions that we're having with Express Scripts. I think what I can tell you is people are very aware of the clinical profile of Xtampza supported by a differentiated label including the clinical decision makers at Express Scripts. At the end of the day, there is a level to which we're willing to go to secure formulary positions, and sometimes there will be disagreements between us and a particular payer. I would also emphasize that the decision that ESI made in this moment of time is unprecedented; no payer has ever removed Xtampza ER from their formulary. We continue to be in discussions with them, because to the degree there's a reasonable path forward, we don't want physicians to have to deal with that non-clinical barrier. We're committed to focusing on the real-world data across the portfolio in a way that's appropriate for both Xtampza and the Nucynta franchise, and I think that the data is really encouraging.

Our next question comes from David Steinberg with Jefferies.

I have a couple of questions for Paul. When you repurchased the full rights from Assertio for Nucynta, we saw a substantial improvement in your gross margin, although it still doesn't match the level of Xtampza. The company mentioned plans to enhance those margins through supply chain adjustments and tech transfers. Where do we stand in that process, and when might we expect to see significant improvements in gross margin? Additionally, regarding the recent price increase, what percentage of that increase actually contributed to your bottom line? I have a follow-up as well.

For trying to improve gross margin and our belief that we can bring down COGS, we spoke about that for the first time in relation to the Nucynta deal, but we believe that we can do that across the portfolio as well. But that's in a longer-term horizon. We're in the early stages of developing that plan. We believe that maybe we can talk about it next year, but it's over the course of the next three years or so that that will actually have a P&L impact. As far as price increase, as you know, we took a 9.9% price increase at the beginning of the year. We realized about 5% of that.

Okay. And then on business development, I know at the beginning of the year you talked about more actively looking for assets. Either on-market assets where you indicated that the barrier had to be quite high in terms of what you would bring in, and then for some development stage assets. I was just curious, given the pandemic, has there been a slowdown in activity because you can't have face-to-face meetings and that sort of thing? Or are you deeply engaged in lots of discussions with lots of companies regarding lots of different products? How should we think about BD unfolding over the next 12 months?

Yes, David, this is Joe. Certainly appreciate the question. Look, we, as you articulated, we're focused in two areas: that midterm window development stage assets, and opportunistically if there is a commercial stage asset where we could leverage the infrastructure. The bar is high because of how bullish we are on the in-line business. I would say COVID-19 hasn't had an impact on our engagement and activity. We know what it is that we're focused on. I think we're active and engaged; we'll see how it progresses over the next many months.

We have reached the end of our question-and-answer session. I'd like to pass the floor back over to Mr. Ciaffoni for any additional closing comments.

Thank you. Thank you for participating in our call this afternoon. Collegium Pharmaceutical is on track to make 2020 a transformative year. I look forward to updating you on our progress. Have a good evening. Be well.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.