Sizing Up Collegium Pharmaceuticals
Summary
- Today, we revisit Collegium Pharmaceuticals for the first time since March of last year.
- The company is doing a good job of reducing debt and recently announced a substantial stock buyback program.
- A full investment analysis follows in the paragraphs below.
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Resistance is a sign that shows you're going the right way” - Constance Friday
Today, we take our first in-depth look at Collegium Pharmaceuticals (NASDAQ:COLL) in a year and a half. Obviously, a lot has happened in the world and with this company since that article posted in March of 2020, right when most of the country was in lock down mode thanks to the pandemic. We update our investment thesis on Collegium to account for recent events below.
Company Overview:
Collegium Pharmaceutical based in Massachusetts. The company IPO'd in 2015 and develops pain management products using its novel and patented, abuse-deterrent technology called DETERx. The platform combines 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 key benefits. The stock currently trades at just above $20.00 a share and sports an approximate $700 million market capitalization.
Product Portfolio:
The company's product portfolio consists of the following:
Xtampza ER - This is an extended-release, abuse-deterrent, oral formulation of oxycodone. This product is meant for management of pain severe enough to require daily, around-the-clock, long-term opioid treatment
Nucynta ER and Nucynta IR - The are extended-release and immediate-release formulations of tapentadol.
Recent Events:
The company announced second quarter results on August 5th. The company crushed bottom line expectations. However, this was due to a one-time non-cash adjustment of $62.6 million, or $1.77 per share from Collegium's release of its tax valuation allowance on the majority of net operating losses and other deferred tax assets. Outside, earnings were consistent with consensus targets. Revenues for the quarter rose just over six percent from the same period a year ago to just under $83 million, just slightly below expectations.
Source: August Company Presentation
Xtampza ER net product revenues came in at $33 million, just slightly down from year ago levels. Nucynta franchise net product revenues were just under $50 million compared to $44.5 million for 2Q2020. Leadership also provided the following updated forward guidance for the fiscal year. Xtampza ER continues to take market share in oxycodone extended-release market as market share grew almost one percent from March to June of this year to 31.5%.
Source: August Company Presentation
The company also provided updated guidance for FY2021 (above). Then ten days after second quarter numbers came out, the company's board approved a $100 million stock buyback program, sizeable given the company's market cap.
Analyst Commentary & Balance Sheet:
Over the past two months, H.C. Wainwright ($28 price target), Needham ($32 price target) and Truist Financial ($32 price target) have all reiterated Buy ratings on Collegium Pharmaceuticals. Cantor Fitzgerald downgraded the shares to a Neutral from an Overweight rating on August 6th. The analyst firm has a $22 price target on the stock.
Source: August Company Presentation
The company ended the first half of 2021 with just over $200 million of cash and marketable securities on its balance versus approximately $280 million in aggregate debt. The company has done a decent job of consistently reducing debt in recent quarters. There is not a whole lot of insider activity in this stock. Three insiders did sell just over $700,000 in aggregate of stock in the second quarter.
Verdict:
Source: August Company Presentation
Revenues and costs have been very stable over the past six quarters. The company offered up a conservative outlook for the second half of this year with its second quarter results, part of the reason the stock slumped some 15% after its earnings release.
Source: August Company Presentation
The stock would appear cheap at approximately five times consensus profits in FY2022 and around two times revenues. The company also seems to have a solid plan of leveraging its balance sheet (below).
Source: August Company Presentation
Despite this, the shares have done very little over the past year and may continue to be ranged bound until investors feel better about Collegium's growth prospects. Ordinarily this would be a great combination for a simple covered call strategy. Unfortunately, while there are options available against this equity, they don't provide the liquidity to make this approach viable. For those traders out there, the shares are in the lower end of their trading range. They might be worth a small bet in anticipation of moving back up to the top end of the range and the stock would seem to have a small amount of downside from here, especially with the new stock buyback authorization.
If there are obstacles, the shortest line between two points may be the crooked line.”― Bertolt Brecht, Galileo
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