Greetings, and welcome to the Collegium Pharmaceutical Second Quarter 2021 Earnings Conference Call. It is now my pleasure to introduce your host, Alex Dasalla, Head of Investor Relations and Corporate Communications.

Welcome to Collegium Pharmaceutical's Second Quarter 2021 Earnings Conference Call. This is Alex Dasalla, Head of Investor Relations for Collegium. I'm joined today by Joe Ciaffoni, 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. You are cautioned that such forward-looking statements involve risks and uncertainties, including and without limitation, the risks that we may not be able to 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 the call. Today, we will discuss our performance during both Q2 and the first half of the year in addition to our outlook for the remainder of 2021. At Collegium, we remain focused on our mission of being the leader in responsible pain management. I want to take a moment to recognize my colleagues for their hard work and thank them for their commitment to people living with pain and the communities we serve. During the second quarter, we expanded our partnerships in support of life sciences and education in disadvantaged communities with a donation to Science from Scientists, a nonprofit whose mission is to improve STEM literacy. Our contributions will fund multiple STEM programs for the upcoming school year. We are dedicated to delivering on our mission, driving growth in our business and creating value for shareholders. We will do this by maximizing the potential of our differentiated portfolio of pain products, achieving our near-term operational and financial goals and strategically investing in our long-term growth. I'm pleased to report that in the first half of 2021, we made meaningful progress against the priorities that we outlined for you at the start of the year. Our business is strong and our people are healthy. We are in a phase of growth and value creation, and we are on track to achieve our objectives for 2021. Notable accomplishments in the first half of 2021 include: we posted record revenue, net income and adjusted EBITDA. We expanded our market position with Xtampza ER, delivering all-time highs in market share and total prescriptions. We grew Nucynta franchise net revenue to over $100 million, a level not seen since 2018. We reduced operating expenses, excluding stock-based compensation. And we grew cash on hand to over $200 million. Xtampza ER prescription growth and market share gains were strong in the first half of 2021, driven primarily by new Medicare Part D formulary positions that took effect on January 1. COVID-19 dynamics adversely impacted the market, in-person patient visits and our field force's ability to make in-person office visits. The combination of these factors resulted in Xtampza ER prescriptions skewing to exclusive plans, which pressured gross-to-net relative to our expectation. Although we are seeing signs of progress, we anticipate the COVID-19 dynamics will persist in the near term. And as a result, we are adjusting our full year guidance for Xtampza ER and the Nucynta franchise. For the remainder of 2021, we are focused on growing market share with Xtampza ER and improving the mix of business. Over time, we are committed to managing Xtampza ER gross-to-net to less than 65% by improving the mix of business and optimizing payer contracts. The Nucynta franchise grew revenue in the first half of 2021, driven by favorable gross-to-net dynamics offsetting pressure on prescriptions. For the remainder of 2021, we expect Nucynta franchise prescriptions to stabilize and favorable gross-to-net dynamics to continue. Operationally, we achieved our key objectives of leveraging our cost structure, specifically our operating expenses, excluding stock-based compensation, in generating strong cash flows. For the remainder of 2021, we continue to be focused on executing on our growth plan and creating value for our shareholders by deploying our strong balance sheet in a disciplined manner. Our business development strategy is focused on diversification. Specifically, we are seeking to diversify the company in one of three ways. First, financial diversification, like the Nucynta acquisition, where we are focused on commercial stage, high synergy opportunities that would directly leverage our cost structure. Second, diversification through the acquisition of later-stage development defined as Phase II ready or later non-opioid pain assets. Here, we are pursuing programs that have the potential to generate revenue in the 2025 to 2027 time frame, and that have peak sales potential of at least $150 million. And third, we are pursuing commercial stage lower synergy acquisitions that would establish a strategic beachhead into adjacent therapeutic areas. Business development remains a top priority for the organization, and we look forward to updating you on our progress. We are encouraged by our revenue performance in the first half of the year and by the underlying trends in our differentiated pain portfolio. We are on track to achieve our objectives, but recognize we have a lot of work to do. I will now hand the call over to Colleen for a discussion of the financials.

Thanks, Joe. Good afternoon, everyone. Before I start, I want to extend my thanks to my new colleagues at Collegium and recognize their contributions and many talents, which have helped me greatly as I transition to the role of CFO. I am truly excited to be at Collegium, and I'm looking forward to the journey ahead. With that, let me jump into the quarter. In the face of COVID-19, Q2 was another strong quarter for Collegium as we leveraged our operating cost structure and generated meaningful cash flows from operations. Total product revenue was $82.9 million for the second quarter, an increase of 6% from the second quarter of 2020. Xtampza ER net revenue was $33 million, a decrease of 2% from the same quarter last year and a decrease of 7% from the first quarter of 2021. In the second quarter, we saw underlying volume growth across all books of business, but COVID-19 remained a challenging dynamic, particularly in the noncontracted and nonexclusive books of business. Because of this dynamic, mix of business skewed to exclusive accounts, in particular, Medicare Part D, resulting in a gross-to-net discount of 69.5%. Looking to the second half of 2021, we expect Xtampza ER to continue to grow at a moderated pace and consistent with what we have seen in prior years. Moving to Nucynta. In Q2, gross-to-net discount was again better than our expectations, and we expect the franchise to continue to benefit from favorable gross-to-net dynamics for the remainder of the year. Nucynta franchise net revenue was $49.9 million in the second quarter, an increase of 12% from the second quarter of 2020 and a decrease of 5% from the first quarter of this year. Operating expenses, excluding stock-based compensation, were $27.3 million in the second quarter compared to $26.2 million in the same quarter last year and $27.5 million in the first quarter of this year. The decrease in Q2 operating expenses, excluding stock-based compensation, compared to Q1 reflects our continued commitment to leveraging our cost structure. Our non-GAAP adjusted EBITDA was $40.1 million for the second quarter versus $39.1 million in the second quarter of 2020. Let me make a quick note on net income. Our GAAP net income of $72.8 million includes a one-time noncash adjustment of $62.6 million due to the company's release of its tax valuation allowance on the majority of net operating losses and other deferred tax assets. Please see our press release issued earlier today for a reconciliation of GAAP to non-GAAP results. As of June 30, our cash balance was $202.8 million, which is a $20 million increase from March 31. This is the fifth consecutive quarter we have increased cash on hand. Now on to 2021 financial guidance. Due to the ongoing impacts of COVID-19 on our business and gross-to-net dynamics across the portfolio, we are updating our previous product guidance communicated on May 6. For 2021, we now expect Xtampza ER revenues in the range of $140 million to $150 million, down from $155 million to $165 million, and Nucynta franchise revenues in the range of $195 million to $205 million, up from $185 million to $195 million. We would note, although product mix assumptions have been adjusted, expectations for overall revenue remain consistent from the start of the year. As such, we continue to manage our P&L to the plans we laid out entering 2021. For the full year, we continue to expect total operating expenses, which include stock-based compensation, in the range of $125 million to $135 million and adjusted EBITDA, which excludes stock-based compensation, in the range of $170 million to $180 million. Let me finish with the summation and key points. COVID-19 continues to impact our business, particularly as it relates to gross-to-net dynamics across our product portfolio. But despite these dynamics, Q2 was a strong quarter for Collegium and our overall revenue and cash generation performance was solid. For the remainder of the year, we are focused on continuing to execute commercially, leverage our cost structure, generate cash and deploy our balance sheet in a disciplined manner.

Thanks, Colleen. I'm pleased to report that we continue to generate momentum for Xtampza ER and successfully manage the life cycle of the Nucynta franchise, which has resulted in a strong first half of 2021 and positions Collegium well for the remainder of the year. I'm encouraged that Xtampza ER was once again the fastest-growing ER opioid and achieved all-time highs for total prescriptions, market share and total prescribers in the second quarter. The actions we took in late 2020 enabled us to pull through our new exclusive ER oxycodone formulary positions and continue to grow share within our 2020 exclusive wins, building momentum and further advancing the market position of Xtampza ER. Xtampza ER total prescriptions grew to greater than 173,000, up 22% year-over-year and 7% sequentially. Xtampza ER exited Q2 with a 31.5% share of the ER oxycodone market, up 1% from Q1. There were approximately 19,000 prescribers of Xtampza ER, a 33% increase versus the second quarter of 2020 and a 5% increase versus the first quarter of 2021. Xtampza ER share performance within exclusive accounts was very strong in the second quarter. We continue to see market share and volume growth within all new exclusive formulary wins as well as continued share growth within the exclusive formulary wins we had achieved in 2020. Similar to Q1, Xtampza ER growth skewed toward the exclusive accounts and in particular, Medicare Part D. While we did see growth in the nonexclusive and the noncontracted books of business, it was behind our expectations and continued to be impacted by the ongoing COVID dynamics. For the remainder of the year, we're focused on growing Xtampza ER market share within our nonexclusive books of business. Moving to the Nucynta franchise. Nucynta franchise total prescriptions and market share were stable in the second quarter. For the second quarter in a row, we saw strong results from the execution of our payer strategy, which is aimed at improving the profitability of the franchise. Through the continued execution of our payer strategy and overall commercial execution, we believe we can stabilize prescriptions for the remainder of the year. Looking to the second half of 2021, while we've seen some improvement in patient visits to the health care professionals and the ability of our reps to access physician offices, the COVID pandemic remains a persistent challenging dynamic in the marketplace and the Delta variant introduces uncertainty. As a result, we anticipate that Xtampza ER will grow in the second half of the year, albeit at a moderated rate versus the first half of the year, and we expect Nucynta prescriptions to be stable. We remain confident about the outlook and market position of our pain portfolio, and we're focused on finishing strong in 2021. I look forward to updating you again on our progress on future calls.

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

Our first question comes from David Amsellem with Piper Sandler.

So just one on Xtampza and then one on the Nucynta franchise. So first on Xtampza, I guess given the situation with the gross-to-net and given that you're gaining share in the ER oxycodone market and given that patients tend to be sticky here, does it make sense to shift your focus to nonexclusive or parity positioning and try to rework some of these contracts? Is that a way to course correct if you think you need to course correct at all? So that's the Xtampza question. And then on Nucynta, you seem like you've had success with the strategy of ridding yourself of contracts with suboptimal economics. Is there any more work you can do there to further improve economics? In other words, are there other contracts that you're evaluating? And what could we potentially see there beyond 2021 for the franchise?

David, this is Joe. Thanks for the question. I'll take the Xtampza question and then Scott will take Nucynta. So look, when you look at Xtampza gross-to-net, let's take a step back, and I want to emphasize, we believe the situation that we're seeing is driven primarily by COVID dynamics and we expect it to be temporary and transient. As we said in our prepared remarks, the way that we're going to focus on addressing it is focusing in on improving the mix of business, in particular, deriving more prescriptions from contracted nonexclusive and even plans in which we're noncontracted. And then over time, optimizing contracts when we have the opportunity to do so. 2022, as an aside, is a year where many contracts will be up for renegotiation and we'll have an opportunity to optimize those contracts. So the final comment I would make on Xtampza is that we expect and we're committed to managing gross-to-net to less than 65%, and we expect to be under 65% no later than 2023. And I'll let Scott take the Nucynta question.

That's great. Thanks, David. Yes. So when it comes to Nucynta, we're happy with the execution of the strategy and what it's resulted in. We really evaluate this on a contract-by-contract basis with the attitude that we always want to have the broadest access we can for our products, but it has to be at economics that work for us. And so going forward, absolutely, we'll be evaluating upcoming Nucynta contracts as they expire. If we have the ability to maintain access and improve economics, we will. And in some situations, we'll make the choice to walk from a contract. So there is opportunity going forward to continue to optimize for Nucynta.

Our next question comes from David Steinberg with Jefferies.

I have a couple of questions. I guess just drilling down on the impact of COVID on Xtampza and resulting in weaker gross-to-net. I was wondering if you could provide a little more clarity. So just so I understand it, obviously, the salespeople can't make as many visits to the doctor's office. But can you just give us a little more information on how this works in terms of physical meetings between the doctor and the patient? And are you saying basically that unless there's an in-person meeting, a switch can't happen? And if that's the case, I mean, the pandemic could go on in various forms for years and years. Are there no workarounds if that's the case so that there could be a switch without this in-person meeting between doctor and patient? And then just shifting to M&A. I know BD has been on the front burner for a long time with the company. And just curious, as you build up the cash, you have more opportunities as well as debt capacity. In terms of looking at companies, is it just a question of valuations being too high or that you just can't find anything that really fits what you want to do? Or in fact, have you bid on some assets that you lost? And then related to that, Joe, would you consider branching into other areas besides pain where you can leverage your sales force? Are there any areas that are ancillary, you can use the same sales force or would you have to have a whole new sales force if you were to branch out into other areas besides pain?

Yes. Great, David. Thank you for the questions. I'll take both of those. And look, maybe what I'll do to the first question in terms of what we think the dynamic is with Xtampza, I'm going to step back and give a little perspective on what we think is happening in the market. So first off, we believe COVID is impacting, and I want to be specific on this, the dynamic portion of the market. And as you all know, 85% of the extended-release market is driven by patients on an immediate-release opioid transitioning to an extended-release opioid. If you look at the overall market from a total prescription perspective this year, it's performing in line roughly to what it is we would have expected. It's the new-to-brand market, which is where that dynamic and the changing of products is where you see the pressure. And the end result of that is a higher level of continuity of care than what it is we would have anticipated. Now the primary driver that we believe is having impact is that in-person patient visits with physicians is off. Now it's not that physicians are unable to switch a patient. But what we've learned over the past 1.5 years is all specialists in general, their switching is less productive if they're not seeing the patient in person. But pain specialists, in particular, are more reluctant to switch an otherwise stable chronic pain patient. And so that dynamic is where we think we're seeing the pressure when we don't have the support or the payer driving ER to ER switching where we're seeing the physician keep the patient on whatever therapy they're on if they're not seeing them in person. Secondarily, we also know that our field forces' inability to make in-person office visits at the level they were able to pre-pandemic is also a factor. And then the final thing, just to complete that, I would say is, although we're seeing some signs of progress, it hasn't been steady. It starts and stops around the country. And with where we're at with the Delta variant, when we look to the remainder of this year, we do think COVID-19 dynamics will persist, okay? Now with regards to business development, on that front, I'm going to first off emphasize as I always do, and I think it's important because it will really clarify what we're doing in our approach. Our core business is strong. We are in a growth phase. We're generating cash and our assets are durable. So because of that, we are always going to be disciplined in our approach. Now for the past year or so, we have been active, we have been focused and we've been engaged. And so to your question specifically, David, where are we at? As it pertains to commercial stage high synergy and later stage development assets, we know what we like and we also know what we believe makes sense from a value perspective. And the one thing that we won't do is we're not going to overpay for any opportunity. We don't feel that we have to do a deal. So we're looking to do a deal that really makes sense for the company and for our shareholders. And so because of where we're at in those 2 areas, we've expanded our focus to what we refer to as commercial stage lower synergy acquisitions, which would bring us into adjacent therapeutic areas. And the reason we call out lower synergy is in those scenarios, we wouldn't be leveraging our current field force, but we would be taking on or building a field force effort to support that asset. So we would realize some synergy but not the way we would in other types of acquisitions. And I'm not going to get into or I'm not inclined to get into the adjacent areas we would look at, but because I did reference it on our last call, I would say we do believe and like and think neurology makes sense for Collegium.

Our next question comes from Tim Lugo with William Blair.

This is John on for Tim. So I was just wondering if you could give any updates on how payer discussions are going ahead of the upcoming contract season? And another one on Nucynta, do you feel that the franchise has reached a point of stability or do you still see some variability in how we should think about the seasonality of the franchise moving forward?

Yes. So John, I'll let Scott take the question on the payer discussions and then I'll come back on Nucynta.

All right. Thanks. Thanks, John. So no, nothing new to report right now. But as we typically do, a lot of decisions are made in the second half of the year here, and we'll give you an update on the November call related to any wins that we have in place for next year. But I will reinforce strategically what we're trying to accomplish, right? We're still looking when it makes sense and being selective, but for new exclusive wins or for parity wins and then sometimes parity as a run into exclusive. And the only additional thing that Joe alluded to earlier is, we're now at a point we may have some opportunity to optimize contracts for Xtampza, more on the edges as we enter 2022 and then a greater opportunity as we enter 2023.

Yes. And John, as it pertains to Nucynta, for the remainder of 2021, our expectation is that we'll see stable prescriptions for the remainder of the year. On a going-forward basis, and it will be dependent upon what we do in the payer space for the remainder of this year. But candidly, I don't anticipate significant changes to the access position of Nucynta. Seasonally in the first quarter when deductibles reset, that's where you may expect to see some downward pressure on prescriptions, but we think it will be offset by our pricing and contracting strategy, which is why I would reinforce, we expect to be able to deliver on a sequential relative basis a relatively stable revenue with the Nucynta franchise from now through loss of exclusivity.

Our next question comes from Rohit Bhasin with Needham & Company.

This is Rohit on for Serge. Is the penetration of Xtampza in the most recent exclusive formularies on par with those for prior years? And given the challenges, does the strategy for the next set of formulary wins change?

Yes. Thanks, Rohit, for the question. So yes, so our performance in exclusives this year has been just as strong as it typically is. And as we alluded to, the overhang or the issue that we're up against is the performance in the nonexclusive books of business because of COVID. So exclusive performance is strong, both the new 2021 wins and continuation of the 2020 wins. And as a result of that, strategically, we're still focused on selectively winning new accounts.

And Rohit, the one thing I would emphasize, and I said this in my prepared remarks, the pressure on gross-to-net that we're seeing, we think one is a COVID dynamic. We think it's temporary and transient. And the most important thing when you think of Xtampza moving forward as we continue to expand our position in the market from a share perspective, which we expect to continue to do, we are confident through the optimization of contracts and we are committed to managing the brand at a gross-to-net of less than 65% for the long term. So we're really encouraged and excited about the share and the market position of Xtampza.

Our next question comes from Greg Fraser with Truist Securities.

On Xtampza, can you comment on how overall prescription share growth has trended relative to your expectations? It sounds like the mix of business is the primary driver for the guidance change, but I'm curious if recent share growth has kind of lagged what you're expecting.

Yes, Greg, this is Joe. I would say that what we're seeing with Xtampza from a share perspective is in line to expectation. The challenge that we're experiencing is more mix and where that's coming from.

Got it. Okay. Is it fair to say that the revised outlook does not assume a material pickup in volumes for the nonexclusive and noncontracted books of business in the second half?

Yes. I would say, look, this year, we've seen progression across all books of business. So we expect to see growth through the remainder of the year. But right now, look, sitting here today with the Delta variant, what's going on around the country. What we're calling out is, I think it's reasonable as we look to the remainder of the year to say that we would expect COVID dynamics to persist. And our expectation when we started this year and even as recently as the last call, that we would be returning to a new normal in the back half of 2021, and we don't necessarily think or aren't planning on that happening.

Understood. Okay. And then on expenses, you've done a really good job managing spending during the pandemic. Thinking ahead beyond this year, how should folks think about potential OpEx growth in a more normalized, hopefully, a post-COVID environment?

Greg, this is Colleen. Thanks for the question. I would expect that we're going to continue to leverage our operating cost structure as we had. You will see some return of expenses as we started to see this year as things open up, but we will be managing those to fairly stable levels and continuing to leverage our operating structure.

Our next question comes from Oren Livnat with H.C. Wainwright.

I have a couple. I totally understand that patient starts and switches are obviously less likely in nonexclusive books when patient visits are down. But you also said a couple times in the script that you do plan to focus on driving adoption in the second half in those very books. So how do you do that? What can you do differently in second half that you haven't done in first half? And I have a separate question.

Yes. Thanks for the question, Oren. So how we do that is the commercial focus that we have. So we've launched new materials. We have some new marketing content we're putting into the marketplace, some new messaging to create the need for a differentiated abuse-deterrent technology. So when we're able to get in front of the physician live, it's through that differential messaging and focus that we actually get to growing the nonexclusive books of business.

Okay. And I guess I'm just wondering if there's a tipping point where physicians have enough patients and enough experience with patients who have had to switch because of exclusive plans and successfully switched either, well, either new starts or switching from ER to ER. When do docs just get more comfortable and say, okay, new patient face-to-face visits or not or exclusive or not, I've had 100 patients that I've successfully moved over because I had to because of their exclusive coverage, and now I'm comfortable with Xtampza ER. So why wouldn't they be pushing more nonexclusive lives over, COVID or not?

Yes. So Oren, this is Joe. That's a great question, and I really appreciate you asking it. Look, at the end of the day, our strategy, as we've been very clear from a payer and physician experience perspective, is not to get every life in an exclusive position, but to get enough scale so that the experience a physician and importantly, their staff has is that they can get access to all of their patients, get Xtampza ER access for all of their patients. Now what you just touched upon and what we're not able to get a clean read on because of the COVID dynamics is with the scale of access we have, which is roughly 45% of all lives in an exclusive position, is it, in fact, spilling over? And the issue is with pain specialists when they switch an otherwise stable patient, chronic pain patient, they want to have that conversation more often than not with the patient in person. Hence, why it is relative to what our expectations have been for this year, we're not seeing the growth in contracted nonexclusive or noncontracted where the payer isn't driving or encouraging the physician to switch. So that's something we were hoping to get a clean read on in the second half of the year. But as Scott alluded to, to your first question, that's what we're focused on to the back half of the year in terms of our commercial effort.

So I guess if I could just follow up on that. If COVID ended tomorrow and we had a deluge of patient visits, do you think you would have more growth in second half? I'd call it organic growth in the nonexclusive or dynamic part of the market than we saw last year because that was a big narrative coming into this year. We were hoping to see a little bit steeper curve once you got past the initial bolus of exclusive lives. And I'm wondering, do you think we would have seen that without COVID or do you think it would still be a slog to penetrate that business?

Yes. So another great question. It's never easy. But our belief is, if we were in a world of the return to new normal or a non-COVID environment, our expectation is that we would have and would see more progression both in contracted nonexclusive and even noncontracted books of business. And as we've talked about, we believe we are focused on mix. We also, and I'll emphasize again, we are absolutely committed to managing Xtampza at a gross-to-net of less than 65%, and we would do that through the optimization of contracts as we have opportunities and no later than in 2023. We have a lot of opportunity in 2022 to optimize. And the final point I would make, which I do not believe will be the case if we were to find that we weren't able to have impact in those books of business through our commercial effort, we would address our cost structure to ensure we were having an impact of a gross-to-net of less than 65%. But we believe that we can and we will. But ultimately, we need to see it, but we need to have a clean view to be able to make that call.

Our next question comes from Brandon Folkes with Cantor Fitzgerald. I believe we lost Brandon on the line there, and it seems there are no further questions at this time. I'd like to turn the floor back over to management for any closing remarks.

Great. Thank you all for your attention. I'm encouraged by our overall performance in the first half of 2021. The fundamentals and positioning of our differentiated pain portfolio are strong, as is the financial position of the company. Our priorities for the remainder of the year are clear, and we are focused on growth and value creation. I look forward to updating you on our progress. Have a great evening.

Ladies and gentlemen, this concludes today's webcast. You may now disconnect your lines at this time. Thank you for your participation and have a great day.