Collegium Pharmaceuticals: Post-Q4 Assessment

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About: Collegium Pharmaceutical, Inc. (COLL)
by: Bret Jensen
Summary

Today we take a look at Collegium Pharmaceuticals, which posted fourth-quarter results late in February.

The company has a couple of approved products in the fast growing area of abuse deterrent pain management compounds.

We take an in-depth look at Collegium in the paragraphs below.

"My cats inspire me daily. They inspire me to get a dog!" - Greg Curtis

Today, we take a look at a Tier 3 biopharma concern that recently posted Q4 results.

Company Overview:

Collegium Pharmaceutical (COLL) IPO'd in 2015 and is a Canton, Massachusetts based specialty pharmaceutical company intent on becoming a leader in pain management. The company's portfolio of commercialized products includes Xtampza ER, Nucynta ER, and Nucynta IR. Collegium Pharmaceutical currently trades just over $17.50 a share and has a market capitalization of just south of $600 million.

Portfolio:

According to the Institute of Medicine, chronic pain is a tremendously common problem with approximately 100 million people in the U.S. alone affected each year. With roughly 20-30% of the world population affected, chronic pain is a more prevalent problem than heart disease, cancer and diabetes combined. Prescription opioids remain the primary therapeutic of choice for chronic pain but concerns about abuse and misuse has led to a crackdown on the space. Such action by the government has both positive and negative externalities. Clearly something must be done with opioid overdoses more than quadrupling since 1999. However, one negative externality of stricter regulation is reduced access for patients who legitimately need the drugs.

Recently, the Massachusetts AG filed an amended lawsuit against privately held Purdue Pharma which is designed to make members of the Sackler family personally responsible for its role in the opioid crisis. The story is an interesting development not only for what it says about what's happening to the opioid space, but also because of Collegium's history with Purdue.

Speaking of that history, Collegium is still battling it out in the courts with Purdue. The legal battle first started back in 2015 when Purdue exercised an option to sue Collegium for patent infringement over Xtampza. Over the past few years the litigation has taken a variety of turns. Collegium denies all claims made against them. Currently, the parties are in the early stages of fact discovery. Written discovery has commenced with depositions expected to commence during the first half of 2019. In the company's latest 10-Q, Collegium states that it's too early in the process for them to evaluate the likelihood that they will successfully defend themselves or to what financial exposure they are open to with a loss in court.

Purdue has also taken the company to court over Nucynta. Purdue claims that the immediate release and extended release formulations of the drug infringes on 3 different patents. Fact discovery will close on October 9th, 2019, expert discovery March 18th, 2020, and the trial is set for September 28th, 2020. On top of this, the company is facing litigation from Teva, 4 other lawsuits, and subpoenas from the Offices of the Attorney General of Washington, New Hampshire, and Massachusetts.

Company's Technology:

The company has developed a novel, patented, abused deterrent technology called DETERx. The company combined active ingredients like oxycodone with fatty acid and waxes to form microsphere beads that are filled into a capsule. The wax-based microspheres are designed to resist physical and chemical manipulation such as crushing and dissolving. The abuse deterrent formulation differs from others since each individual microsphere has extended release and abuse-deterrent properties, which means the drug can be administered in different ways without compromising its chief benefits.

Xtampza:

Xtampza ER utilizes the DETERx technology. The drug is an abuse-deterrent, extended-release, oral formulation of oxycodone approved by the FDA for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate.

Xtampza ER total prescriptions were 94,153 for the fourth quarter of 2018. Prescriptions are up 147% against the prior year quarter. For the full year, total prescriptions for Xtampza ER grew 233%, reaching 326,828, compared to 98,283 total prescriptions in 2017. Xtampza revenue for the fourth quarter reached $18.4 million.

The company garnered an additional 13 formulary wins, which brings their total to 25. Starting on January 1st, 2019, the company moved into an exclusive ER oxycodone formulary position across 13 commercial and Part D plans that cover roughly 11 million people. The latest formulary wins put Xtampza ER in an exclusive position for 20% of commercial lives and 37% of Part D lives.

Nucynta:

Nucynta comes in both an extended release and immediate release formulations of Tapentadol. Nucynta ER is FDA approved for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate and is also approved for neuropathic pain associated with diabetic peripheral neuropathy severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. Nucynta IR is indicated for the management of acute pain severe enough to require an opioid analgesic.

Total prescriptions for the Nucynta franchise were 157,055 in the fourth quarter of 2018. For the full year, total prescriptions for the Nucynta franchise were 651,337. Revenues for Nucynta totaled $55 million in the fourth quarter and $211 million for FY2018.

Collegium recently amended the Nucynta commercialization agreement with Assertio. A big development from the new agreement is that Collegium is no longer responsible for the $135 million guaranteed annual minimum royalty obligation. Thus, improving the company's cash flow and balance sheet. The trade-off is that Collegium eliminated their right to terminate the deal through the original four-year term. Furthermore, the company issued Assertio four-year warrants to purchase 1,042,000 shares of common stock at an exercise price of $19.20.

Source: Company Presentation

Analyst Commentary and Balance Sheet:

As of September 30th, 2018, Collegium had cash and cash equivalents of approximately $146 million. The company posted net income of $9.1 million in the fourth quarter or earning per share of 27 cents.

Both Cantor Fitzgerald ($35 price target) and H.C. Wainwright ($30 price target) have reissued Buy ratings since Q4 results came out on February 27th. The median analyst price target on COLL is currently in the low $30's.

Verdict:

There has been intense focus on more abuse resistant pain management products over the past few years and this trend is very likely to continue while the opioid crisis rages. However, this also has become a very crowded field that has its shares of failures like Egalet (EGLT). The company does have two key approved products and enjoys solid analyst support.

However, its legal battles ad a good amount of uncertainty and this space probably will continue to get its share of congressional scrutiny. Insiders were steady and frequent sellers of the stock in 2018 and have sold approximately 50,000 shares in aggregate so far in 2019. There is enough here to make this an okay and small "watch item" position for those that want exposure to this fast-growing space. The stock does have options against it, but the bid/ask spreads are quite wide so it is not the ideal buy-write candidate.

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Bret Jensen is the Founder and author of articles on The Biotech Forum, The Busted IPO Forum, and The Insiders Forum. To receive these articles as published on Seeking Alpha, just click the appropriate link and hit the orange follow button.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.