Alex Dasalla – Head of Investor Relations Joe Ciaffoni – Chief Executive Officer Paul Brannelly – Chief Financial Officer Scott Dreyer – Chief Commercial Officer.

David Amsellem – Piper Jaffray Serge Belanger – Needham & Company David Steinberg – Jefferies Myles Minter – William Blair Brandon Folkes – Cantor Fitzgerald Kevin Kedra – Gabelli.

Good day, ladies and gentlemen, and welcome to Collegium Pharmaceuticals Third Quarter 2018 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

[Operator Instructions] And as a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to Alex Dasalla, Head of Investor Relations. Please go ahead..

Thanks, James. Welcome to the Collegium Pharmaceutical’s third quarter 2018 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.

Before we begin today’s call, we want to remind participants 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 will incur significant expense and may not prevail in current or future patent infringement litigation or other litigation pertaining to our products and product candidates.

These risks and other risks of the company are detailed in the Company’s periodic reports filed with the Securities and Exchange Commission. Our earnings release and this call will include discussion of certain non-GAAP information.

You can find our earnings release, including relevant non-GAAP reconciliations, on our corporate website at collegiumpharma.com. Our future results may differ materially from our current expectations discussed today. I will now turn the call over to Collegium’s CEO, Joe Ciaffoni..

Thank you, Alex. Good afternoon. And thank you, everyone, for joining us. 2018 continues to be a transformative year for Collegium. Xtampza ER is the fastest-growing branded ER opioid year-to-date and became the number two prescribed branded ER opioid in terms of total prescription market share. Acquiring the U.S.

commercialization rights to the Nucynta franchise has broadened the Collegium portfolio, increased Collegium’s relevance to all stakeholders and is accretive in 2018, accelerating our time to profitability.

The Collegium portfolio consisting of Xtampza ER, Nucynta ER and Nucynta IR is distinctly positioned, differentiated and viewed favorably by pain specialists. Importantly, it provides treatment options to people with pain that stay in the continuum of care.

As of September 2018, the Collegium portfolio has a 14.5% share of the branded ER opioid market. We’re building the necessary expertise and organizational capabilities to support our leadership aspiration and making meaningful progress as it pertains to the strategic plan that we are working on with our Board of Directors.

We have made strides towards becoming the leader in responsible pain management, but we have a lot of work to do. In the third quarter, net revenue was $70.2 million, which represents a 487% increase versus third quarter 2017.

Growth was driven by the acceleration of Xtampza ER and the addition of the Nucynta franchise to the Collegium portfolio in 2018. Cash on hand increased to $139.8 million. We are focused on finishing strong in 2018, while at the same time taking the necessary actions to ensure that we start fast in 2019.

Effective January 1, 2019, I am pleased to announce that we’ve secured exclusive ER oxycodone formulary wins for Xtampza ER at 13 plans that represent approximately 11 million lives. The majority of these wins are commercial and at the state level. These additional ER oxycodone wins bring our total number of wins to 25.

As was the case in 2018, we expect to see accelerated growth from the commercial plans in the first three months to four months of 2019 followed by continued growth at a moderated rate throughout the remainder of the year.

In addition, we anticipate strong growth in Medicare Part D in the first quarter as the plans where we have exclusive ER oxycodone wins implement their controls.

As it relates to the Nucynta franchise, Collegium and Assertio have established a strong partnership anchored on the shared belief that tapentadol is a unique molecule, and that Nucynta ER and IR have the potential to make a positive difference in the lives of people suffering from pain.

As we previously announced, the market position of Nucynta ER was adversely impacted by the supply disruption caused by Hurricane Maria in the fall of 2017. Nucynta IR was impacted, too, as a result of the ensuing confusion in the marketplace.

The length and depth of the supply disruption was not contemplated by either company at the time the deal was done, but we are now pleased in partnership with Assertio to announce that we have agreed to amend the commercialization agreement to lay the foundation for continued success.

Highlights of the new agreement include Collegium is no longer responsible for the $135 million guaranteed annual minimum royalty obligation. The impact of the restructured royalty tiers is that Collegium’s cash flow increases at all levels of sales versus the current yield, while still providing certainty to Assertio.

The elimination of the guaranteed annual minimum royalty obligation is expected to reduce liabilities on the balance sheet and simplify the accounting and approve the tax efficiency for the transaction. Paul will provide additional details during his update.

This new agreement provides meaningful value to Collegium as compared to the current agreement, reaffirms our commitment to the Nucynta franchise and fortifies our partnership with Assertio. 2018 has been a transformative year for Collegium. We are proud of the progress that we’ve made, and we’re committed to a strong finish.

Looking ahead to 2019, we believe the bolus of exclusive ER oxycodone payer wins that take effect on January 1, 2019, will fuel the acceleration of Xtampza ER. We believe that we’ll be able to stabilize Nucynta prescriptions and grow revenue in 2019.

Importantly, we’re taking the necessary actions to achieve our mission of being the leader in responsible pain management through the development and commercialization of innovative and differentiated products for people suffering from pain and our communities. I will now hand the call over to Paul..

one, an increase in gross-to-net discount as a result of an increase of Medicare coverage gap estimates for the current and prior quarters; two, a change in the dose mix ordered by wholesalers with the two highest doses decreasing in average of 7%, while wholesaler orders for the lowest three doses increased.

This shift better aligns wholesaler ordering to prescription demand; and finally, three, in addition, the second quarter of 2018 included a positive adjustment for prior period commercial and Medicare Part D rebates, while the third quarter only included minor adjustments.

The gross-to-net discount of our combined portfolio was 53.9% in the third quarter of 2018 compared to 55.4% in the first quarter of 2018 and 52.3% in the second quarter of 2018. For the remainder of 2018, we expect the gross-to-net discount to remain around 55% on a portfolio basis.

On a product basis, we expect the gross-to-net discount for Xtampza ER to be in the low 60% range and the Nucynta franchise to be closer to 52%. For the third quarter, our net loss was $16.5 million compared to $13.3 million for the prior year quarter, resulting in a net loss per share of $0.50 and $0.45 for the 2018 and 2017 quarters, respectively.

The 2017 quarter included a one-time $4.4 million increase in net product revenue as a result of the Company’s change to the selling method. In order to supplement our GAAP financial statements, we included non-GAAP adjusted loss in our earnings press release and 10-Q.

We believe that the non-GAAP adjusted loss provides investors insight into management’s view of the Company’s core operating performance. The non-GAAP adjusted loss for the third quarter of 2018 was $8.3 million, which is an improvement from $11.2 million in the third quarter of 2017.

Non-GAAP adjusted loss is calculated by adjusting our net loss by excluding stock-based compensation of $3.7 million and non-cash Nucynta deal-related expenses, including non-cash interest charge of $5.6 million, and adding back the actual Nucynta royalties.

As of September 30, our cash balance was $139.8 million, an increase of $21.1 million from December 31 and $6 million from June 30. This marks the seventh consecutive quarter of improving cash flows after adjusting for stock offerings and term loan draw downs.

Based on our current operating plans, we expect to finish the year with at least $145 million in cash, an increase from our prior guidance of $135 million. I will now turn the call over to Scott Dreyer for a commercial update..

We’ve streamlined messaging to enable stronger execution versus OxyContin; we’ve launched pull-through plans focused on Xtampza ER’s overall broad availability and exclusive positions; we’ve increased call frequency to HCPs, who prescribe Xtampza ER; and increased our overall investment in non-personal promotion.

For Nucynta, we streamlined messaging to focus on tapentadol’s novel dual mechanism of action, and the fact that Nucynta ER is the first and only opioid indicated for neuropathic pain associated with diabetic peripheral neuropathy. We’ve also increased investments in non-personal promotion directed to prescribers of the Nucynta franchise.

We believe that these actions will enable us to grow Xtampza ER and stabilize the Nucynta franchise in the fourth quarter. Our market access team made significant progress securing the next wave of exclusive ER oxycodone wins for Xtampza.

Effective January 1, 2019, we’ve secured exclusive ER oxycodone positions at 10 commercial plans and three Part D plans, primarily at the regional and state level. An additional 11 million lives will be covered in an exclusive ER oxycodone position in 2019, approximately the same number of lives that were added in the first quarter of 2018.

Within the commercial channel, Blue Cross Blue Shield of Tennessee, Blue Cross Blue Shield of Alabama and EnvisionRx have publicly communicated that they are moving Xtampza ER into an exclusive ER oxycodone position.

Within Part D, Blue Cross Blue Shield of Tennessee and Navitus have communicated that Xtampza ER will be their exclusive ER oxycodone in 2019. With these wins, Xtampza ER will be in an exclusive position for 20% of commercial lives and 37% of Part D lives.

We also believe there is significant growth opportunity within Humana D, Optum D and Cigna-HealthSpring Part D in 2019, particularly in the first quarter. This growth will be driven by the control the plans are putting in place to reduce the number of medical exceptions as well as Collegium’s pull-through efforts.

Our understanding is that approximately 70% of medical exceptions for OxyContin, which were approved in 2018, will be up for renewal in the first quarter. The commercial organization is laser-focused on growing Xtampza ER and stabilizing the Nucynta franchise through improved operational execution for the remainder of 2018.

I’ll now turn it back to Joe..

Thanks, Scott. We will now open it up for questions..

Thank you. [Operator Instructions] Our first question comes from David Amsellem with Piper Jaffray. Your line is now open..

Thanks. Just have a few. So first on Xtampza and the formulary wins. The color is helpful.

But I just was wondering if you can elaborate on the potential for exclusivity wins on national plans, whether it’s commercial or Part D and help us understand where you need to improve access nationally? And then, secondly, regarding the state regional plans, can you talk about specific large states and regions where, again, you have yet to gain the access that you’re looking for? And where you are on those negotiations? And then the last question is on Nucynta.

And I guess, this is also a payer access question. I mean, you inherited contracts from Depomed or now Assertio.

So I guess the question is just for 2019, is there any – are there any major changes contractually that we should be expecting? And do you think that there needs to be any major changes regarding the terms back for those products going forward? Thanks..

David, this is Joe. Thanks for the questions. I’ll try to walk through them in the order in which you put them forward. So first off with the formulary wins, as we communicated throughout the year, our focus and as part of our strategy is to move down more to the state and regional focus. We feel we have good coverage with our national payers.

To keep it in perspective, 90% of lives overall have availability to Xtampza ER and our paid rates in commercial are 90%. So we’re trying to bring down now the exclusive wins to the state level.

To your question around which states, because we’re not able to announce any wins prior to the approval of the plans or prior to their announcements, what I would say with regards to that question is we are certainly focused on the biggest states, so if you were to follow population as a guide.

And I think at the beginning of the year, it will become fair to people that, at least, in a couple of instances we’ve secured that ER oxycodone position in some of the big states.

And then to your final question as it pertains to Nucynta, as you know, as we’ve worked through the year, the final phase of the Nucynta integration plan was to focus in on the evolve phase and the things that we would do differently. From the payer space on Nucynta, what I would say is we’ve carried forward the contracts that we’ve inherited.

We now will be focusing in on, as we go into 2019, which contracts are performing, which ones are not, and we think that we have an opportunity to add Nucynta through the course of the year or into 2020 to some plans where we think we can get some market share movement.

Okay?.

Okay, that’s helpful.

If I may just sneak in a follow-up just on the gross-to-net, just given all the exclusive contract, and should we expect gross-to-net to creep up higher next year, given the addition of the new exclusive contracts?.

Hi, David. This is Paul. So we expect gross-to-net to stay in the low 60% range because as we’re able to grow the business, we’ve become a more significant customer for someone like wholesalers, and we think we have some room there, and then potentially things like our allowance for potential returns.

So we think it’ll stay right in this – the current range..

Thanks..

Thanks, David..

Thank you. Our next question comes from Serge Belanger with Needham & Company. Your line is now open..

Hi, good afternoon. A couple of questions on Xtampza. First one for Paul.

Can you just comment on the inventory levels of Xtampza in the third quarter? And whether you expect any major changes over the fourth quarter ahead of these 13 additional formulary wins?.

Hi, Serge, thanks for the question. So for the third quarter, inventory levels stayed pretty much the same. What we did see and what I said in the prepared remarks is that we did see the wholesalers coming down on the doses that they were ordering. So that shift, we’ve seen happen in the third quarter.

And – but we don’t expect any major stocking or destocking in the fourth quarter with the new plans coming on board. What we’ve seen now over the last handful of quarters with exclusive contracts coming in is when there’s actual demand, that’s where we see pharmacies actually reacting and stocking.

So that’s something, I think, we’d see in the first quarter more so than in the fourth quarter ahead of those..

Okay. And then for Joe or Scott, can you just comment on the Xtampza prescription growth we’ve seen so far in the second half of the year.

Has that met your expectations? And you kind of commented on what you expect in terms of the progression in 2019, if you wanted to just elaborate on that?.

So, Serge, I’ll hand over the 2018 portion to Scott and then maybe come back with some commentary on 2019..

Yes, thanks for the question, Serge. So in terms of our prescription growth in the third quarter, as I’ve said, we’re not satisfied. We knew we had exponential growth in the first half of the year and that would moderate. But our focus is on extending growth in the fourth quarter.

And to do that, we’re focused on execution, we’re focused on increasing our nonpersonal and on the further pull-through of the market access today, so we can build momentum in the fourth quarter before the bolus of wins that come in 2019.

Joe?.

And Serge, as we think of 2019, I’ll reiterate, we know what the commercial plans. We now have enough experience that the fundamental thing that happens with those plans is there’s disruption to the marketplace and to be specific with the ER to ER conversion that occurs, which is not typical.

So when we think of the year, we would expect growth to be accelerated in the first half of the year. I think it would moderate to the second half. But candidly, I believe and would have – and expect us to be growing quicker both in the third quarter and what we’re seeing in the fourth quarter, which gets to commercial execution.

And so I think our focus, and where we should be – get the benefit of the focus that we continue to have on improving our execution from a message delivery perspective, managed care pull-through, in particular, in the plans where we have a contracted position that is nonexclusive, I would expect to see us perform better next year when we get to the second half than what we’ve performed this year..

Okay. Let me sneak in one last one for Nucynta.

Now that you stabilize the ER product and modified the royalty agreement, should we expect you to invest – make additional investments in this franchise to grow the products?.

Yes. So good question, Serge, I think that what you should expect is that we’ll continue to invest in the product at a level where it is we have in 2018. I think we have a – as we come out of the year, we have a strong plan in place in terms of publication, conference presence, what’s driving education around the Nucynta franchise.

But I think from a cost structure basis overall for the organization, we’ll be leveraging the cost structure we have. In the context on the Nucynta agreement, in the sales moves that we’re in this year, if that were in effect or it was next year, it would mean about $9 million additional to Collegium in terms of cash flow..

Thank you..

Thank you. Our next question comes from David Steinberg with Jefferies. Your line is now open..

Thanks. Three questions. First, I think you said that you have, during this period of negotiation, booked 13 managed care wins covering 11 million lives.

Can you just clarify, did you also say that the 11 million lives covered will be the same as you started with in January 2018? Secondly, on the SG&A line, you’ve been running around $31 million a quarter. It looked like you ticked up to the $33 million, $34 million range.

So were there any one-offs? Or is that sort of your new run rate for SG&A? And then just third strategically. You started off with sort of abuse-deterrent portfolio of marketed products and those in development, and then you went out and bought an opioid.

There’s a company that recently said they’re exploring strategic alternatives to potentially sell their fentanyl-based opioid. And I was just curious there aren’t that many companies in the market to expand their pain/opioid portfolio.

And is this something – are you still on the lookout for non-ADF pain drugs as you become more of a pain company? Thanks..

Sure. So David, this is Joe. Thanks for the questions.

I’m going to ask Scott to answer the question on managed care; Paul, the question on SG&A; and then I’ll come back on your third question, right?.

Thanks, David. Yes, so what I was speaking to is if you look at the amount of lives that were added in an exclusive position moving from 2017 to 2018, the 11 million going from 2018 to 2019 is essentially the same amount from a life standpoint.

Paul?.

Great. And David on your SG&A question about what the current run rate is, the third quarter included some one-time – large one-time consulting expenses as well as some litigation, additional litigation expenses.

Of course, the litigation piece will be a little bit lumpy over the next couple of years, but it was more so in the third quarter than what we’ve seen historically..

the first one is coming up with what is the five-year financial trajectory for the company and how much cash the current portfolio will generate; the second work stream is focused on really digging deep to understand what are the organization’s capabilities and where do we feel we have competitive advantage; and the third work stream is mapping out the entire pain landscape.

Although Collegium was started with an abuse-deterrent formulation, we acquired the Nucynta franchise, which we feel is a differentiated molecule. We also want to be a part of that next wave of growth inclusive of nonopioid solutions, which is why in our mission, we focus on responsible pain management.

And with regards to the opportunity that you’re talking about, that would be one that I would say we are not interested in..

Great. Thanks for the color..

Thank you. Our next question comes from Tim Lugo with William Blair. Your line is now open..

Hi, Myles Minter, on for Tim Lugo, William Blair. Thanks for taking the question. So just got a couple.

Given the recent passing of the SUPPORT act, how do you think that’s actually going to impact the Nucynta instant relief formulation script trends moving forward? And is it going to be a 10% decline, something like that? And can you offset that in real-time with ramping the Nucynta ER portion? Or is there going to be a discrepancy between those moving forward? And I’ve got a follow-up after that.

Thanks..

Great. Hi, Myles, this is Paul. As far as recent litigation, a lot of it is centered around IR products and putting whether it’s limits on the size of prescriptions, whether it’s three, five, seven days, a lot of different state rules and even some different pharmacies have come out with their own policies there.

That will continue to have pressure within the entire IR market. But as we’ve said before, we think that Nucynta IR should outperform the overall IR market, but still decline as far as prescriptions go, but at a slower rate than the overall IR market..

Okay, that’s helpful.

And you – do you have any assumptions on the ramping of extended-release formulations or not commenting on that?.

So Myles, this is Joe. As you know, we don’t give guidance. What I would say now and reiterate what I’ve said in the script, we’re confident we’ve stabilized the ER. We do believe the ER will progress. And that coupled, with a slowing in the rate of the decline of the IR, would put us in a position where we believe we’ll grow revenue year-on-year..

And just a clarification question, how many lives are actually Xtampza exclusive in the quarter and for 2018?.

So Myles, I think if I understood you, if you look at our exclusive lives in 2018 versus 2019, right now, we’re exclusive at 14% of commercial lives and 37% – 36% of part D lives. And as we move to next year, in commercial, we’ll be exclusive at about 20% of lives and still about 37%, 38% of Part D lives..

Great, beautiful. Thanks for the questions..

Thank you, Myles..

Thank you. Our next question comes from Brandon Folkes with Cantor Fitzgerald. Your line is now open..

Hi, thanks for taking my question. Just moving into 2019 and beyond. How do you balance investing behind Xtampza versus Nucynta? And one thing in particular is how do you balance the sales reps time when it seems specialists in terms of what is the picture around the differentiation to prescribe on Xtampza as opposed to Nucynta ER? Thank you..

So Brandon, I’ll take the first part of your question, hand the second to Scott. When we look broadly into 2019, we believe our cost structure is one that we will leverage, not add to. And when you look from a corporate priority perspective, our number one priority is to continue to grow and get Xtampza ER on that accelerated growth rate.

We want to maximize the potential of the Nucynta franchise. And I would just add to that, operationally, everything we do is supportive of Xtampza is the priority in terms of our calls or first position, how we leverage incentive and other operational parts of our structure to reinforce that through the organization..

The only thing I would add to what Joe said is when we look at the call and the engagement of physicians, we’re able to, because of the overlapping call points, effectively promote both products with a focus on the differentiation of Xtampza versus OxyContin, and the fact that Nucynta is a novel molecule with a unique MOA that can meet the needs of patients at a different point in the continuum.

And so that’s how we’re able to be efficient and put a balance of promotion in a given call..

And Brandon, one other thing I would add, there is a difference of how Xtampza sources business relative to Nucynta ER. So as you know, this market is driven by IR to ER conversion. With Xtampza ER, our focus is to the ER oxycodone portion of the market and Xtampza sources 75% of its business from IR oxycodone.

Nucynta ER is thought of, because of the diabetic peripheral neuropathy indication, more often for patients that have mix pain with a neuropathic component. And it sources differently, it sources 26% of its business from tramadol and Nucynta IR, it sources 35% from hydrocodone and less than 30% from oxycodone.

So that’s where we feel they’re distinctly positioned and differentiated, and that’s played back to us in research that we do with our pain specialists..

Thank you. That’s very helpful..

Thank you. [Operator Instructions] Our next question comes from Kevin Kedra with Gabelli. Your line is now open..

Thanks for taking the questions. First, I want to go back to the wins you expect for 2019. You said that those will be similar in number of covered lives to what you saw at the beginning of 2018.

Would it be fair to think that you expect a similar magnitude of increase in prescriptions going into Q1 of 2019? And then, secondly, I want to ask about thoughts around the sales force. I know you guys are looking at couple of different ways to kind of maximize your selling efforts, especially around Nucynta.

But have you considered looking at kind of the size of that sales force, given the performance that we’ve seen once the boost from the new contract wins seems to moderate?.

So Kevin, I’ll take the first question and hand the sales force question to Scott. As we think of the payer opportunities, if you think of equal number of lives, I think it would be reasonable to say it’s a similar overall opportunity. So we’re excited about the impact those new commercial wins in particular we’ll have in the first quarter.

I would also emphasize one of the things that we think is important is the second opportunity within the Medicare Part D books of business, where we’ve had those exclusive ER oxycodone positions as the medical exceptions come due again to be approved for patients, who are on OxyContin. And we believe about 70% of those occur in the first quarter..

Thanks, Kevin. When we look at our sales force, as part of our annual planning process, we’re always looking at our footprint and our coverage of our customer base. And so we put a big premium on operational stability.

Right now, when you look at the 130 representatives that we have and the 11,000 targets, we cover 93% of the Xtampza opportunity, 76% of Nucynta ER, almost 70% of Nucynta IR and 60% of the branded ER market.

And so the fact of the matter is, we feel real good about that coverage and where we’re deployed, and are focused on maximizing the relationships that we have there..

Thank you. I am showing no further questions in queue. So I’d like to turn it back over to Alex Dasalla for closing remarks..

I’ll hand it over to Joe to close..

Once again, thank you for joining us this afternoon. 2018 continues to be a transformative year for Collegium. We’re encouraged by our accomplishments, and laser-focused on finishing strong. At the same time, we’re taking the necessary actions to ensure that we get off to a fast start in 2019.

On a final note, I want to take a moment to recognize and thank my colleagues at Collegium for the effort that they put forth everyday and for their commitment to making a positive difference in the lives of people suffering from pain in our communities. Have a great evening..

Thank you. And ladies and gentlemen, that does conclude our conference for today. Please, have a great day. You may now disconnect. Have a wonderful day..