Collegium Pharmaceutical: No Longer Speculative After A Year Of Profitability

Summary

• Despite the COVID -19 pandemic, Collegium Pharmaceutical had an impressive 2020. The company recorded a full year of profitability and commercial progress.
• Collegium is off to a good start in 2021, with the company reporting Xtampza ER's quarter-to-date total script volume being up 13% over Q4.
• Collegium was able to grow in the middle of the pandemic without a massive increase in OpEx. As a result, I am switching COLL out of my speculative portfolio.

After a year of profits, Collegium Pharmaceutical (NASDAQ:COLL) has been authoritatively transferred out of my speculative investment portfolio and has now settled in my growth portfolio. Management has been able to maximize the value of the company's pain portfolio and was able to hit its operational and financial goals. Collegium was able to record its first full year of profitability in the face of COVID-19. Now, I believe the company is set-up for long-term growth and will become one of the leading pain management brands on the market. Now, I will be switching COLL out of my speculative portfolio and will be moving it into my growth portfolio. As a result, I will be looking to add to my COLL position at regular intervals rather than accumulating a position with tactical precision.

I intend to go over the company's recent Q4/2020 earnings report and provide my opinion on its performance. In addition, I will discuss why I am confident in moving COLL out of my speculative portfolio and switching to a growth strategy for managing my position.

A Profitable Year

There is no doubt that 2020 was at the very minimum a challenging year for healthcare companies. Some companies were knee-capped by the pandemic, while others were able to step up and address the challenges the world was facing. For Collegium, it was able to turn 2020 into a transformative year by acquiring the rest of the Nucynta franchise and improving Xtampza ER's revenue growth.

Full-year total revenue was $310M, which is a 4.5% increase from 2019. Xtampza ER was able to grow its net revenue by 22% to hit $128M and has claimed a 25.1% share of the ER oxycodone market. The list of Xtampza ER prescribers continues to grow, with approximately 14,800 unique prescribers, which is an increase of 11% over Q4 of 2019. Nucynta continues to be under pressure and pulled in $182M in net revenue, which was a 5% decrease from 2019.

In terms of the financials, the company reported $123.6M for 2020's OpEx, which was a 3% cut from 2019. Collegium also repaid $37.5M of its term-loan and left the year with a $174.1M net cash balance.

Collegium was able to deliver on the company's total revenue targets, realize a full-year of profitability, pocket some cash and pay down some debt. It is important to note that all these developments transpired in spite of COVID's impact on in-office patient visits, which was down around 20% from pre-COVID.

From Speculative To Growth

Now, Collegium is entering a new phase of growth that should create long-term value for its shareholders. The primary focus needs to be on fast-tracking Xtampza ER's growth by securing additional formulary positions, which could make it the market leader in 2023. This prospect looks to be a likely scenario now that the company completed the construction and validation of its Xtampza ER manufacturing facility. In addition, the company has set a standard with generics by settling the Teva (TEVA)-Xtampza ER litigation, which anticipates a generic launch no earlier than September 2033.

For 2021, Collegium expects Xtampza ER revenues in the range of $155M-$165M. For the Nucynta franchise, the company anticipates revenues between $175M and $185M, In terms of OpEx, Collegium expects to record between $125M-$135M, which is under 2020's OpEx guidance. So far, Collegium is "encouraged" by what it has seen through the first six weeks of 2021. Collegium has witnessed an acceleration in Xtampza ER's script volume and market share performance with the quarter-to-date total prescription volume being up 13% over Q4. As of February 5th, Xtampza ER's has 46% of the new-to-brand ER oxycodone market, which is up from 29% in December.

Obviously, investors should be encouraged by these trends, which are pointing towards profitability goals and generating substantial cash. If everything goes as planned, Collegium will report steady growth in the coming years (Figure 1).

Figure 1: COLL Revenue Estimates (Source: Seeking Alpha)

Perhaps the most important point to note, I don't see anything that is stopping Collegium from obtaining these goals.

Downside Risks

Although I am bullish about COLL, I must admit there are a few downside risks that investors should consider. First and foremost is the impact of the COVID pandemic and the potential of it persisting longer than expected. Indeed, the pandemic could slow down the company's progress and hurt its growth trajectory.

Another downside risk comes from the company's next endeavor or possible inaction. The company has a strong portfolio... but it does not have a strong pipeline. Now that Xtampza ER is gaining steam, the company needs to find its next prospect. Indeed, the company probably has a few years before it has to pull the trigger, but the lack of inaction or the wrong move could have the market looking for an exit before Xtampza ER generics hit the market.

My Plan

Considering the company's ability to execute in the middle of the pandemic and the company's performance thus far in 2021, I am moving away from making meticulous additions that I made in order to establish a COLL position. Now, I am looking to switch to a strategy that takes some of my short-term trading profits and deposit them into COLL at quarterly intervals. Admittedly, these transactions are minuscule compared to the executions from building my initial position; however, they are going to add-up over the next five years.

In the near term, I am looking to make a small addition at these discounted prices. The stock is currently trading at 2.29 forward price-to-sales (Figure 1) and is coming into an area of support on the daily chart (Figure 2).

Figure 2: COLL Daily (Source: Trendspider)

Long term, I am going to wait for the company's Q1 earnings to see if the early 2021 trends persisted and the company's formulary efforts have moved Xtampza ER closer to the market leader.

Analyst’s Disclosure: I am/we are long COLL. 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.

Comments

[qwerty11]

They just solved the pipeline problem (by doing a very expensive buy)...

[Biologics]

Still bullish here

[LR83]

Does it not concern you that this is opioid related?

[Biologics]

@LR83 nope... their platform creates abuse-deterrent opioids. The world will still need opioids, so COLL's products could be the best option.