Earnings Call Transcript - COLL Q4 2020

Operator, Operator

Greetings, and welcome to the Collegium Pharmaceutical Fourth Quarter 2020 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alex Dasalla, Head of Investor Relations for Collegium. Thank you, Ms. Dasalla. You may begin.

Alex Dasalla, Head of Investor Relations

Welcome to Collegium Pharmaceuticals fourth 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.

Joe Ciaffoni, CEO

Thank you, Alex. Good afternoon, and thank you, everyone, for joining the call. I'm pleased to be here today to discuss our Q4 and year-end 2020 performance as well as our 2021 outlook. As you know, Collegium is committed to our mission of being the leader in responsible pain management and is highly dedicated to people living with pain and the communities we serve. We are focused on executing our strategy with dual aims of delivering on our mission and creating value for our shareholders. We do this through maximizing the value of our differentiated pain portfolio, achieving our near-term operational and financial goals, and strategically investing in our long-term growth. Including investments in our people, processes, and programs that strengthen our most important brand, Collegium Pharmaceutical. In an extraordinary time, 2020 was a transformative year for Collegium. Our highest priority was the health of our people and their loved ones, customers, business partners, and communities. We were able to successfully maintain operations throughout 2020 and enhance our commercial capabilities to fit a new virtual world and broadly achieve our priorities. Key accomplishments in 2020 include achieving Collegium's first full year of profitability and growing revenue in the face of COVID-19, accelerating Xtampza ER growth, notably strengthening formulary positions, and securing the path to market leadership in 2023.

Paul Brannelly, CFO

Thanks, Joe. Good afternoon, everyone. In 2020, we were able to achieve a financially transformative year for the organization. With the acquisition of the Nucynta franchise and Xtampza ER revenue growth, we delivered on our total revenue targets, achieved our first full year of profitability, generated meaningful cash flows from operations, and paid down debt. Total revenue was $310 million in 2020, an increase of 4.5% from 2019. This was at the midpoint of the guidance range we communicated in early May. A slight miss on Xtampza was offset by the Nucynta franchise exceeding our expectations. Overall, we view this as strong revenue performance for 2020, as robust underlying demand for our differentiated pain products offset a more challenging and protracted negative impact from COVID-19 than we had anticipated. Xtampza ER net revenue was $128 million in 2020, which was an increase of 22% from 2019. The gross to net discount for Xtampza ER was 61.5% in 2020 compared to 58.5% in 2019. As a result of the new exclusive ER oxycodone formulary wins, we expect gross to net discount to be in the 62% to 64% range in 2021, though it will be lumpy from quarter to quarter.

Scott Dreyer, CRO

Thanks, Paul. As both Joe and Paul mentioned, 2020 was a transformative year for Collegium, and I wanted to take a moment to recognize the efforts of our commercial organization. We demonstrated great agility and resilience in the face of the COVID-19 pandemic and worked tirelessly to fulfill our commitment to being the leader in responsible pain management. In the fourth quarter, we took specific actions to generate momentum and Xtampza ER achieved all-time highs for total prescriptions, market share, and total prescribers in the quarter.

Joe Ciaffoni, CEO

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

Operator, Operator

Our first question comes from David Amsellem with Piper Jaffray.

David Amsellem, Analyst

Just had a couple. So first, on Nucynta, this is kind of a long-term question. But with the changes in contracting, or we're basically getting out of suboptimal contracts. Can you just talk about the cadence of volumes this year, just in terms of what we'll see in terms of volume degradation and how better economics make up for that as the year progresses? So that's number one. And then secondly, can you talk through your latest thinking on business development and M&A? I know, Joe, you have talked about trying to bring in another asset, particularly with the Nucynta LOE at the end of 2025. Maybe talk through philosophically what you're looking at and how you're thinking about it these days?

Joe Ciaffoni, CEO

Great. Thanks, David. I'm going to ask Scott and Paul to split the question on Nucynta. Scott can speak to the cadence of volume, and Paul perhaps can talk a bit about price and revenue.

Scott Dreyer, CRO

Great. Yes. Thanks, David. So when we look at volume for the year, what we really see is pretty steady volume decline through the first half of the year, maybe a little bit greater in the first half than the second half because of when the actual changes took place. And I'll let Paul speak to the revenue side.

Paul Brannelly, CFO

Yes. On the revenue side, we should see the effect, the benefit of canceling and renegotiating contracts in the first quarter of the year. And then it should be steady throughout the year. So the impact is really in Q1 that we'll see a difference in the economics of the franchise.

Joe Ciaffoni, CEO

Yes. And David, one thing I would add on Nucynta, we also will get a benefit from the price increase that we took at the beginning of the year. To your question on business development, how it is we think about it, and what I would emphasize there is, one, we're really encouraged that the business is in a strong position. We believe it's poised for growth. And we have a long runway. We're certainly committed because of that to being disciplined in our approach. So we don't feel we need to do a deal just to get a deal done. We're really focused on doing a really good deal. To that end, we're active, we're focused, and we're engaged. So we know and have priorities of what it is that we like. We're engaged in that process and business development for us. We continue to be focused on and our highest priority being non-opioid pain solutions, with the potential for later-stage development, with the potential of being able to generate revenue in that 2024 to 2026 time frame.

Operator, Operator

Our next question comes from Tim Lugo with William Blair.

Lachlan Hanbury-Brown, Analyst

This is Lachlan on for Tim. I guess, first of all, just a quick clarifying question to Scott. I think you said you had 46% new-to-brand share in the most recent week. Was that within exclusive plans? Or is that of the overall market? And then a second question. Obviously, it's early, but can you speak to the dynamics you're seeing in the plans where you have parity position? How is that looking in the first nearly two months of the year? And how does it compare to expectations?

Scott Dreyer, CRO

Great. Yes. Thanks for the questions, Lachlan. So first, the new-to-brand share I shared of 46%. That's in the overall business across all business through week ending February 5, not just exclusives. And then second, regarding the parity position. So yes, what we've seen there is, right, that position went into place at Optum in July. We've seen a little less than a share point of growth every month. It's our first large parity. So we know it's going to behave differently than our exclusives. And what we expect is continued steady growth there with a chance for maybe greater growth as we get to the second half of the year. So that's what we're seeing and what we anticipate.

Joe Ciaffoni, CEO

And Lachlan, this is Joe. I would also, from a managed care perspective, we're seeing market share gains broadly across all of the books of our business. At this point in the year, it skews to the exclusive, in particular, Medicare Part D. As Scott said, as the year goes on. And what's particularly important where we're in parity positions is when we get to that new normal, when people are returning to regular in-office patient visits, that's where we would expect to see a little bit of lift to the back half of the year.

Operator, Operator

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

Serge Belanger, Analyst

I have a few questions. First, looking back at the fourth quarter, there appears to be a decline from the third quarter despite an increase in prescriptions. Was this solely due to a change in gross to net revenues? Regarding the overall business environment, last quarter you mentioned that patient physician visits were down by 20%. Has that improved at all in the fourth quarter or the first quarter? Lastly, for Paul, regarding the price increase of approximately 10% on both Xtampza and Nucynta, I recall that in the past you’ve seen about half of that impact. When do you anticipate this will take effect? Will you still realize half of it now that you have parity plans instead of just exclusives?

Joe Ciaffoni, CEO

Okay, Serge. So Paul will take your first and third question, and then Scott will take the second.

Paul Brannelly, CFO

Great. Hi, Serge. So first question about the decline of Xtampza revenue in the fourth quarter compared to the third quarter. That is driven by gross to net. The gross to net discount, as we've said, is lumpy through the year. In the fourth quarter, it increased 2.3 points from the third quarter. So a 60.9% in the third quarter, and it went up to 63.2% in the fourth quarter. So that's the slight decline in Xtampza revenue in the fourth quarter. And then I'll jump over to your third question, which was about the price increase. We will realize about 5 or 6 points of the price increase because of price protection built into contracts. And we will see the benefit of that right in January. So there's no lag in seeing the benefit of that. And I'll hand it over to Scott for your second question.

Scott Dreyer, CRO

Yes. Thanks, Serge. So regarding patient visits, where we sit right now, patient visits are still down approximately 20%. What we anticipate is sometime during the second half of the year is where we might see some of the bounce back of those visits.

Operator, Operator

Our next question comes from Brandon Folkes with Cantor Fitzgerald.

Brandon Folkes, Analyst

Maybe just firstly following up from an earlier question. Joe, how do you think about sort of moving earlier in terms of R&D profile in terms of business development and as you build the company out? And then I echo your comments about a very good start to 2021. How should we think about the trajectory? Obviously, last year was very difficult with COVID. This year, it seems like we are going to have a tailwind in the second half of the year with sort of hopefully reopening. So just maybe as much as you can, what is your thinking this year in terms of the growth trajectory on Xtampza for the second half of the year, maybe in a normalized environment as well as with COVID? And then lastly, what's your updated thinking? Any update, I guess, on OxyContin generics?

Joe Ciaffoni, CEO

Okay. Thanks, Brandon. So look, first, with the business development question and from an R&D perspective, as we've said, we believe we have capabilities that we can leverage as it pertains to later-stage development assets. So we're looking for programs that are either in Phase II or Phase III ready. We think that aligns to the capabilities of Collegium. When you think of the year as it pertains to Xtampza ER, we believe that what we expect to see is the immediate acceleration that we've seen with strong overall growth for the year, skewed to the first half of the year. But to your point, if we are all fortunate enough that there is a return to normal, particularly driven by the 23 million lives that we have in a parity position, we think although growth will continue to be moderated in the second half of the year, perhaps we can do a bit better than what we've done in the past couple of years. And I'll let Paul take the third question.

Paul Brannelly, CFO

Great. Thanks, Jeff. Yes. So for Purdue, we don't have complete line of sight as to potential generics there. But what we know is that they have 19 Orange Book listed patents, which includes 10 that have expiration dates between 2027 and 2030. So that's what we know as far as their IP situation.

Operator, Operator

Our next question comes from Kevin Kedra with G. Research.

Kevin Kedra, Analyst

First, I want to ask about how you are thinking about what the trajectory could look like for the business coming out of COVID. You talked about, obviously, a benefit for Xtampza. But thinking more about Nucynta, some of the stickiness there seems to be a function of the lack of visits that we're seeing and the lack of switching that tends to happen. So can you maintain that stability that you anticipate for Nucynta as we come out of COVID whenever that might be?

Joe Ciaffoni, CEO

Yes. So Kevin, this is Joe. I'll take that one. Big picture when you look at the year for Nucynta, we expect there to be pressure on volume as a result of the execution of our contract strategy, offset by favorability in terms of price and gross to net perspective, which we believe will lead to sequentially stable revenue in 2021.

Operator, Operator

There are no further questions at this time. I'd like to turn the floor back over to management for any closing remarks.

Joe Ciaffoni, CEO

Great. Thank you, and thank you all for your attention. 2020 was a truly remarkable and transformative year for Collegium, and we head into 2021 with encouraging momentum and a strong financial position. We are entering a phase of growth and value creation for the organization. We will continue to focus our efforts on maximizing the value of our differentiated portfolio of pain products, achieving our near-term operational and financial goals, strategically investing in our long-term growth, and delivering on our mission of being the leader in responsible pain management. I look forward to updating you on our progress, and have a great evening.

Operator, Operator

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.