Good day, and welcome to the Q2 2019 Collegium Pharmaceutical’s Earnings Conference Call.I will now turn the call over to Alex Dasalla. You may begin..

Welcome to the Collegium Pharmaceutical’s second quarter 2019 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 none of the information presented today is intended to be promotional and 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 opioid industry litigation and investigation, patent infringement litigation or other litigation pertaining to our products.These risks and other risks of the company are detailed in the company’s periodic reports filed with the Securities and Exchange Commission.

Our future results may differ materially from our current expectations discussed today. Our earnings press 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.I will now turn the call over to Collegium’s CEO, Joe Ciaffoni..

Thanks, Alex. Good afternoon and thank you everyone for joining the call. We're pleased with the progress that we made in the first half of 2019 versus our key strategic and operational priorities. And we are on track for 2019 to be a breakthrough year for Collegium Pharmaceutical.

The second quarter marked another quarter of growth for Collegium capping a strong first half performance.Total net revenue for the first six months was $149.6 million, which represents a 9.3% increase over the first half of 2018.

Xtampza ER delivered strong year-over-year growth driven by the 13 new exclusive ER oxycodone payer wins that came online at the beginning of the year. Compared to the first half of 2018 Xtampza ER total prescriptions grew 60% and Xtampza ER total net revenue increased 51% to $51.2 million.

Driven by operational stability and execution, we expect Xtampza ER to continue to grow over the remainder of 2019 at a moderate pace compared to the first half of the year.With respect to the Nucynta franchise, we saw signs of stability in the second quarter.

Sequentially, total prescriptions and market share were flat compared to the first quarter of 2019. We believe that Nucynta ER volumes will grow modestly over the remainder of 2019.

And we expect Nucynta IR is declining in line with the IR market.Importantly, and as we said at the start of the year, we believe the organization is sized appropriately to maximize the potential of the portfolio.

We're committed to leverage and not growing Collegiums cost structure and evidence of that commitment was reflected in lower sequential quarter and year-over-year quarterly operating expenses.As we strive to become the leader in responsible pain management, we recognize that our most important brand is Collegium Pharmaceutical.

Our entire organization works hard every day to differentiate Collegium Pharmaceutical and to earn the trust and respect of our various stakeholders.Recent headlines related to opioid litigation developments reinforce the importance of good corporate citizenship, and the need to operate from a position of trust and accountability, putting the best interest of patients and our communities at the forefront of all that we do.Quantitative market research conducted in the second quarter showed that among our targeted healthcare providers, Collegium was ranked second only to Pfizer as a leader in responsible pain management, a testament to the quality and professionalism of our team and to the growing recognition of Collegium’s commitment.

As part of that same research Collegium was rated number one based on ethical business practices, a belief that the company's product portfolio and materials, services and websites support responsible pain management, and a positive reputation among the public and medical community.As we continue to build awareness around our commitment to being a leader in responsible pain management, we recognize the importance of leading with the science and the evidence based outcomes are a key component to differentiating our brands.

Since joining the team in the spring, our Chief Medical Officer Dr. Richard Malamut has been evaluating our scientific communications efforts in developing a plan for future enhancements.We now have a comprehensive publication plan in place and we have a strong presence at this year's PAINweek in September, the largest U.S.

pain conference for clinicians dedicated to pain management.The presentation of new real-world data regarding Xtampza ER and Nucynta franchise, including data derived from surveillance systems that track abuse and diversion allow us to enhance our discussions with numerous stakeholders including payers.Before I conclude my opening remarks, I would also like to take a moment to address the ongoing industry-wide opioid litigation.

Prior to doing so, I want to emphasize that our organization stepped into this space in 2016 at a time when others began to step out because of a belief that Xtampza ER and our proprietary to DETERx technology has the potential to make a positive difference in the lives of people suffering from pain and could play a role in responsibly addressing the opioid epidemic.As of today, there are over 2,000 lawsuits against opioid manufacturers, distributors and other participants in the supply chain brought by various plaintiffs from cities to states to attorneys general and other parties.

Of these, we are aware of 27 in which we are currently named.

Where we have an opportunity to do so we are pursuing dismissal based on Collegium’s late entry to the market in the absence of allegations that we engage in conduct that could contribute to the crisis.To-date, Collegium has been dropped from eight of the 11 lawsuits currently consolidated in the Ohio Multi District Litigation that we have been named in and we’re awaiting dismissal in two cases brought against us in the Pennsylvania State Courts.

Collegium was never a party to the prominent Oklahoma entry suit that has recently garnered national attention and Collegium was dismissed from an opioid lawsuit in Arkansas State Court.We are not named in any case in the Multi District Litigation that is a track or bellwether case and do not expect to have involvement or engagement in the MDL for some time.Finally, we did not assume any liability for Nucynta promotion or sales that occurred prior to January 2018.

Instead, any such liability is retained by [us earlier].

While we typically refrain from commenting on litigation of any sort, we realize that this is an area of ongoing inquiry due to the high profile nature of the opioid epidemic and the seriousness of the allegations made against various parties in the industry.Today's commentary is intended to address some of the common questions we have been receiving from the investment community.

However, beyond these brief remarks, we will have no further comment on this topic during this call and we’ll refer you to our quarterly and annual reports filed with the SEC, which contains both detailed descriptions of the status of litigation matters, as well as descriptions of the risks associated with them.Looking to the balance of the year, we remain focused on execution.

We are encouraged by but not satisfied with our accomplishments in the first half of 2019 and we have a lot of work to do in the second half of the year.

I'm confident that Collegium has the right capabilities, and most importantly, the right people in place to make it happen.And at this time, I would now like to hand the call over to Paul Brannelly for a discussion of the financials..

Thanks Joe. Good afternoon everyone. During the second quarter of 2019 we achieved several milestones including total net product revenues exceeded $75 million for the first time; operating activities provided almost $15 million in cash.

And although we had a net loss of $4.7 million on a GAAP basis, we were profitable on a non-GAAP basis for the first half.Additional financial details for the quarter included net product revenue for Xtampza of $26 million, which is a 44% increase from Q2 2018 and a 4% increase from Q1 2019.

Xtampza ER revenue growth was driven by prescription growth, partially offset by a reduction in channel inventory, which had a net revenue impact of approximately $500,000.The gross to net discount for Xtampza ER was 58.4% in Q2 2019, compared to 59.1% in Q1 2019.

The improvement in growth to net discount was driven by 1.4% reduction in reserves for potential returns, which was partially offset by higher rebates.

We believe this gross to net discount for Xtampza will average in the low 60s for the year.Revenue from the Nucynta franchise was $49 million in the second quarter of 2019, down from $49.4 million in the first quarter and from $54.9 million in the second quarter of 2018.

The decrease in Nucynta net product revenue was driven by lower prescription volume.Operating expenses, excluding costs of product revenues were $31.4 million for the second quarter of 2019, compared to approximately $35.3 million for the first quarter of 2019.

The decrease was primarily due to lower sales and marketing related expenses.For the second quarter of 2019, our net loss was $4.7 million, compared to a net loss of $13.1 million for the prior year quarter.

The second quarter of 2019 includes approximately $4.2 million of stock-based compensation expense, and $3.7 million of amortization expense related to the Nucynta intangible asset.Our non-GAAP adjusted income for the second quarter of 2019 was $3.1 million, compared to a non-GAAP adjusted loss of $4.9 million for the second quarter of 2018 and a non-GAAP adjusted loss of $1.7 million for the first quarter of 2019.Please see our press release issued earlier today for a reconciliation of GAAP to non-GAAP results.As of June 30, 2019, our cash balance was $148.7 million, which is a $13.8 million increase from our March 31, 2019 balance.

We remain encouraged by our financial progress for the first half of the year, both in terms of total net revenues and operating expenses, which reflect our stated objectives of continuing to grow the business while leveraging our existing cost structure.With that, I will now turn the call over to Scott Dreyer for a commercial update..

Thanks, Paul. In the second quarter, we saw continued growth of Xtampza ER and stabilization of the Nucynta franchise.

Xtampza ER achieved all time highs for total prescriptions, market share and total prescribers in a quarter.Total prescriptions were 116,593 representing 11% growth over the first quarter of 2019 and 51% growth over the second quarter of 2018.

Xtampza ER exited the second quarter with branded ER market share of 12.6% and oxycodone ER market share of 17%, an increase of 1% and 1.4% respectively towards the end of the first quarter.There were over 13,000 unique prescribers in the second quarter, an increase of 7% versus the first quarter and 29% versus the end of 2018.

We saw a strong market share performance for Xtampza ER across the exclusive oxycodone ER formulary position and significant share acceleration within the new formulary position that went into effect in 2019.In fact Xtampza ER achieved branded ER market share leadership within 19 of the 26 contracts that were in effect to start off 2019.

Total prescriptions from Nucynta for the franchise in the second quarter were 135,257 and we saw stability in prescriptions and market share, compared to the first quarter.In the second quarter, we conducted quantitative market research with our targeted healthcare providers and are encouraged by the results.

Unaided brand awareness for Xtampza was 69% up from 62% in the fourth quarter of 2018.

Xtampza was rated the number one product on product favorability among branded ER products and its abuse-deterrent technology was rated higher than OxyContin.58% of prescribers intend to increase their utilization of Xtampza ER and 63% intend to decrease their prescribing of OxyContin.

Nucynta ER was ranked second on product differentiation and 50% of prescribers intend to increase their prescribing of Nucynta ER.In the same body of research our sales organization was highly rated by pain specialists on overall favorability, knowledge, support and customer engagement.

In the second half of the year we are taking specific actions to drive performance across the portfolio.

These actions include launching new educational resources to enable interactive engagement with HCPs leveraging new digital content to continue to grow brand awareness and executing comprehensive plans to maximize the broader market access coverage of our portfolio.Specific to Xtampza ER the market access team is working diligently to strengthen existing payer positions and to secure new exclusive ER oxycodone formulary wins for 2020.

We’re in the midst of the negotiating season and we’re actively engaged with a large number of national and regional payers. Thus far we're encouraged by how the discussions are evolving.For Xtampza ER the messages to payers are clear and they are compelling. Xtampza ER has a differentiated label relative to OxyContin.

Xtampza ER offers a lower net price than OxyContin when added to formulary and there is numerous case studies demonstrating favorable market receptivity to an exclusive formulary position.We believe that we have a strong case to support the addition of Xtampza ER to payer formulary.

And we look forward to continuing our interactions to raise awareness around the opportunity Xtampza ER represents for their coverage universe. The commercial team is laser focused on operational execution and taking the necessary actions to grow Xtampza ER by continue to stabilize the Nucynta franchise.With that, I will turn it back to Joe..

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

[Operator instructions]. Our first question comes from David Amsellem of Piper Jaffray. Your line is now open..

Thanks. So just a few. So, on the exclusive contracts you already have in place, can you talk about what you can do or need to do to further increase your share? I mean I know you're already in a position of leadership in the broad ER opioid space.

But how do you grow your share? It would be intuitive that you can continue to grow your share, given that you have exclusive access, and yet, there's still quite a bit of OxyContin volumes that we see weekly.

So help us understand what you can do there? And secondly, can you elaborate on your negotiations for new contracts? You mentioned national plans and I don't know if you can give specifics, but maybe frame for us, how many covered lives you think the new contracts could encompass periodically if you were to execute according to plan?.

Thanks for the question, David. So first, on the current plans that are in place. As I said, we feel really good about our performance. We've achieved branded ER leadership at 19 of the 26 plans. As you referenced, when we look at weekly share performance, we see continued progress and growth of share.

So we think we're doing exactly what we need to do there to pull through those plans. When it comes to what's on the table for 2020, I would just reinforce that I'm not going to speculate on the size of the opportunity but we're in negotiations with numerous national and regional payers. We're really encouraged by those discussions.

And we're looking to add both new wins or strengthen our existing position. And we'll be happy to share more on the next call when we have results of our work..

Dave, and I was just going to add, while we have the exclusive wins that have been in place, a couple of the things that we do is we work it from the plan side, and working with them to ensure that the controls that they're trying to implement from our on the ground intelligence are in fact being implemented.

And then the second thing that we do is we continue to ensure that our people are refined and identifying on a physician-by-physician basis, where opportunities to continue to grow share exist. And then with regards to our negotiations, I always like to emphasize that in many respects we're just getting started.

So if you look from an opportunity to improve our exclusive physicians, we have a long runway with about 70% of the market to go and if you look in Medicare Part D we’re at about 50% of those lives in an exclusive position. So we feel really good about where we are, we’re encouraged by the negotiations that are ongoing.

And as Scott said, we'll provide an update on our next call in terms of how 2020 is shaping up..

And then just quick follow-up.

Any color on where you think gross to net on Xtampza will be? Next year low 60s is a good way to think about it or is it going to be higher as you have more exclusives on-boarding?.

Yes, we think we can continue to manage in the low 60s, David..

Our next question comes from Greg Fraser of SunTrust. Your line is open..

You already mentioned that you expect to grow volumes modestly in the second half.

Just clarify, are you referring to growth in the second half versus the first half or on a year-over-year basis?.

Yes, Greg, this is Joe. I was referencing on a sequential quarterly basis, we expect to see modest growth with Nucynta ER..

And then just a quick question on deals litigation. I appreciate your earlier commentary.

But I guess outside of MDL are there any cases in which you are a defendant and that have been moving forward that could go to trial in 2020?.

Yes, Greg, as I said in my comments on the call we’re not going to communicate beyond what it is that I outlined. But if you -- look at what I would emphasize in the perspective what we’re trying to provide is that there's over 2,000 total cases, of which Collegium is currently named in 27 of those.

23 are state cases and they are unlikely to go to trial in 2020..

And then just the last question is, in terms of business development, how has the stock price and the market environment impacted your appetite for BD if at all?.

Yes. So Greg, this is Joe. I appreciate the question. What I would emphasize from a BD perspective is the stock price has not impacted, what it is we're focused on.

So as we outlined on the last call, our highest priority is looking in that midterm window where we're looking for novel mechanisms of action, non-opioid pain solutions, and things that would be of value to the office-based pain specialists in the patients that they threat.

And then of course the other one that was in the short-term, where we’re certainly open to and looking at potentially differentiated assets that if we executed around it would be accretive in the year, we did it, and if not that year the following year..

Our next question comes from Serge Belanger of Needham. Your line is now open..

This is Tian on for Serge. So just one or two. I noticed that the FDA recently had a guidance for the future approvals of opioids. And it seems that in terms of drug with abuse-deterrent properties there is somehow concern about the AEs that they are seeing.

So how do you think this might impact the products that are already on the market versus those who might be looking into entering this space? Any thoughts would be great? Thanks..

Yes, Tan, this is Joe, I appreciate the question. I’m not sure what it is that you're referencing as it pertains to abuse-deterrent the current formulation.

What I would comment with regards to the hearing that the agency is having on the 17th with a focus on both the future approval of opioid analgesics and also incentives and ways to incent innovation to novel treatments for pain, those are two topics that we believe are very important.

We think because opioids are serious medication that it's important that anything that were to be approved to the market there is a high bar and it would be to bring something different than currently available therapies.

And then of course as we talked about we’re trying to position the company to be a part of assuring in the next wave of non-opioid pain solution. So from our perspective, anything that we’re to incent, innovation is a positive..

Okay, great, thanks. And then just on the content lawsuit that’s going on in the news regarding opioids.

Have you seen any change as far as your encounters with physicians that are prescribing opioids or even with payers as you start negotiating contracts?.

Yes, Tian. This is Joe. I would emphasize what we're focused on as what it is that Collegium is striving each and every day to do in terms of being the leader in responsible pain management.

I think the biggest change we're seeing as a result of our efforts, is that the Collegium Pharmaceutical brand is rising to the top of the list with the healthcare providers that we're calling on each and every day. And they value the information and education that our people are providing them. They see our portfolio as innovative and differentiated.

And they look at the content of our materials, whether it be our websites and other educational information that we provide to the best-in-class..

Our next question comes from David Steinberg of Jefferies. Your line is open..

Two questions. The first one is on the status of some of your new contracts. Since they commence, have you seen any increase at all on volume from Ohio workers and the large Mountain West plan? And secondly relates to Medicare Part D.

I know that you thought last year they would start kicking-in in a significant way in the second half of the year, and that didn't quite materialize.

What are your thoughts about the second half of this year compared to last year for Part D plans?.

Thanks for the question David. So first, on the new wins that we announced that went into effect in the Mountain West and Ohio hereabout to come. It's very early, but we're encouraged by what we're seeing there. Right out of the gate we're seeing market share growth consistently week after week. But it's early to drive the other conclusions.

And then on net gain -- and your question about continued growth, what we’ve referenced is as the year resets, kind of the reset or the second chance at Med D. What we saw in the first quarter was absolutely share acceleration within the Med D plan and we expect to see continued growth in the second half of the year..

Our next question comes from Tim Lugo of William Blair. Your line is open..

I’ve got a couple. First of all, you seem to have now starting to stabilize.

How confident are you you’ll get the free cash flow expectations you had when you licensed the franchise? And then secondly, just talking about your new contracts for Xtampza ER the next year, should we expect similar discounting in those contracts? And at what point you think you'll be potentially able to get more favorable discounting in new contracts?.

Your phone is going in and out a little bit. So if we don’t answer your questions exactly, please ask them over again after we comment. As far as meeting our goals, as far as free cash flow, we're managing the Nucynta franchise closely.

And as we’ve said, we view the Nucynta franchise as a great fit into our portfolio, a lot of advantages to having it in our commercial organization. But it's really a financial transaction for us, where we hope to manage the franchise to help us get profitability sooner and to generate cash. And we believe that it's meeting those expectations..

This is Joe. As it pertains to new payer wins for 2020 and how we think of that in terms of an impact on gross to net, we believe and are committed to both in 2019 and 2020 that we can manage the gross to net of Xtampza ER above [16%]..

Our next question comes from Brandon Folkes of Cantor Fitzgerald. Your line is now open..

I was wondering if you can provide any color on the percentage from Xtampza which currently are not going through the exclusive contracts? Thank you..

That’s a great question. So right now roughly 65% of prescriptions go through exclusive and 35% go through non-exclusive or non-contracted..

And Brandon, this is Joe, one other piece of color I would provide there is we're growing Xtampza ER across exclusive contracted, contracted non-exclusive and the non-contracted books of business..

Great and maybe one just follow-up.

As we look to new patients starts in the second half of the year, are you willing to provide some color in terms of where those are coming from just so we can get sense of did they tend to start in the lower doses or are they actually coming from other products where we could see patients switching on starting on the higher doses of Xtampza? Thank you..

Brandon, this is Joe, I will take that on. With the exception of when there is forced conversion from disruption from the payers, the dose utilization of Xtampza is consistent.

So when patients are forced from a payer off of OxyContin to Xtampza we will see a slight increase to the higher doses when we are through those conversion periods or those heavy periods of conversion, you get back to the steady-state of the market and it skews to the lower doses..

Our next question comes from Kevin Kedra of G. Research. Your line is now open..

I want to ask about the FDA, we had change at the top. I know it was big priority addressing opioids under the Gottlieb FDA.

Wondering what you seeing from the Sharpless FDA, if there has been a change in the way that they are approaching opioids and whether the concept of addressing some of the older products without abuse-deterrent formulations, is that something that you think this leadership at the FDA may be wanting to address?.

Kevin, this is Joe, I would say that what we're seeing is the work with Dr. Gottlieb has done when he headed the agency along with the focus continuing as there's been a transition to leadership. As it pertains specifically to anything as it pertains to non-abused-deterrent return opioids I wouldn't want to speculate on that.

But I think from our perspective, the focus of the agency, the work that was put in place and started under Dr. Gottlieb are all things that we are supportive of, participate in when we have an opportunity to comment and certainly look forward to continuing to see how it evolves from here..

And then secondly would you be able to give some kind of view on what your mix is between IR and ER for Nucynta sales? I would imagine that mix shifts over time would be useful to know since IR is kind of diminishing asset whereas ER is something that you talk about being able to stabilize the growth?.

Kevin, it’s Scott. If you refer to our 10-Q, we have that listed each quarter in the MD&A section of our 10-Q, we break out Nucynta IR and ER within that, so you can track it there.There are no further questions. I would like to turn the call back over to Joe Ciaffoni for any closing remarks..

Number one, taking actions to further establish and differentiate Collegium Pharmaceutical as the leader in responsible pain management; Number two to grow a Xtampza ER, stabilize the Nucynta franchise and leverage our existing cost structure to deliver a breakthrough year; Number three, to strengthen existing formulary position and/or achieve new ER oxycodone wins for Xtampza ER that will take effect in 2020; Number four, to lead with the science by generating and presenting real world data on the Collegium pain portfolio; And number five, to execute against our mid-term growth strategy.Before we sign off, I want to take a moment to thank and recognize my colleagues at Collegium for their focus on achieving our goals, ensuring that 2019 is a breakthrough year, and for their unwavering dedication to our mission of becoming the leader in responsible pain management.We look forward to updating you on our progress next quarter.

And I want to thank you for your time and I hope you have a great evening..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day..