Greetings, and welcome to the Collegium Pharmaceutical Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference call is being recorded.

I'll now turn the call over to Christopher James, Vice President of Investor Relations at Collegium. Thank you. You may begin..

Welcome to Collegium Pharmaceutical's second quarter 2024 earnings conference call. I'm joined today by Mike Heffernan, our Interim President and Chief Executive Officer, Founder and Chairman; Colleen Tupper, 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 our products, that we may incur significant expense in doing so, that we may not prevail in current or future litigation pertaining to our business, risks related to our ability to complete the acquisition of Ironshore Therapeutics on the proposed terms and schedule or et al, risks related to our ability to realize the anticipated benefits and synergies of the proposed acquisition of Ironshore, the risk that the business will not be integrated successfully, risks related to negative effects of this announcement or the consummation of proposed acquisition on the market price of our common stock and/or operating results, and risks related to future opportunities and plans for Ironshore.

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 press release, including relevant non-GAAP reconciliations, on our corporate website at collegiumpharma.com. I will now turn the call over to our Chairman, Interim President and CEO, Mike Heffernan..

Thank you, Chris. Good afternoon, and thank you, everyone, for joining the call. Today, we'll discuss Collegium's financial performance during the second quarter and provide an update on our progress in 2024.

At Collegium, we are focused on building a leading diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions while striving to do good as we do well.

I'd like to recognize the Collegium team for their dedication to our mission and community impact, as well as their strong performance in support of our pain portfolio in implementing our capital deployment strategy in the first half of the year.

Our results this quarter and through the first half of the year reinforced Collegium's strong operational execution. We continue to generate robust operating cash flows and drive significant top- and bottom-line growth in our pain portfolio, including growing revenues 7% and adjusted EBITDA 12% on a year-over-year basis in the second quarter.

Through execution of the Hikma authorized generic agreement and securing the six-month pediatric exclusivity extension for the Nucynta Franchise, we are maximizing the value of this portfolio through 2025 and beyond.

The strength of our pain business positions us to execute on the recently announced proposed acquisition of Ironshore Therapeutics, including its commercial product, Jornay PM, a central nervous system stimulant for the treatment of attention deficit hyperactivity disorder, or ADHD, in people six years of age and older.

The Ironshore acquisition meets all of our business development objectives. Jornay PM is a highly differentiated commercial asset that diversifies our portfolio, has significant revenue and growth potential and exclusivity into the 2030s.

Jornay PM is expected to generate net revenue in excess of $100 million in 2024, expands our commercial presence into ADHD, a large and growing market and is poised to become the leading growth driver for Collegium.

Once the acquisition closes, we will leverage our core competencies with respect to commercial execution and build on our proven track record of efficiently and successfully integrating commercial assets to build our portfolio.

Importantly, the addition of Jornay PM serves as a step forward in building another therapeutic area of ​​focus for Collegium. We look forward to closing this transaction in the third quarter, welcoming the Ironshore team to Collegium and embracing Jornay PM as the newest part of our portfolio.

For the second half of this year, we are focused on delivering our financial commitments by maximizing our pain business while closing and seamlessly integrating our proposed acquisition of Ironshore Therapeutics.

We are confident that we will achieve our 2024 financial commitments for the pain business, which, along with the Jornay PM, will set a solid foundation for 2025 and beyond. Additionally, our search for the next CEO to lead Collegium in this upcoming phase of growth is active and ongoing.

And we look forward to sharing updates on this important process as they become available. Our strong executive team has the full trust of the Board, and we'll continue our focus on operational execution during this process. I'll now hand the call over to Colleen to discuss key business highlights and financials..

Net product revenues were $145.3 million in the second quarter, up 7% year-over-year. Belbuca net revenue was a record $52.2 million, up 21% year-over-year. Xtampza ER net revenue was $44.6 million, up 8% year-over-year, and Xtampza ER gross to net was 56.2% in the second quarter.

We now expect the full year Xtampza ER gross to net to be between 55% to 57% in 2024, which is an improvement from our previously guided range of 56% to 58%.

Looking forward to 2025 with the Medicare Part D redesign, Xtampza ER will benefit from the small manufacturer phase-in period related to paying rebates for utilization by low-income subsidy patients, also known as dual eligibles. Nucynta Franchise net revenue was $44.5 million, down 6% year-over-year.

GAAP operating expenses were $43.3 million, up 13% year-over-year. This quarter included a $3.1 million charge related to the CEO transition. Excluding this and stock-based compensation, adjusted operating expenses were $30.3 million, down 3% year-over-year. GAAP net income for the second quarter was $19.6 million, up 51% year-over-year.

Non-GAAP adjusted EBITDA was $96 million, up 12% year-over-year. GAAP earnings per share was $0.60 basic and $0.52 diluted on the second -- in the second quarter compared to GAAP earnings per share of $0.38 basic and $0.34 diluted in the prior-year period. Non-GAAP adjusted earnings per share was $1.62 in the second quarter, up 29% year-over-year.

Please see our press release issued earlier today for a reconciliation of GAAP to non-GAAP results. As of June 30, we had $271.6 million in cash, cash equivalents and marketable securities. We generated another quarter of strong cash flows, enabling us to execute on our capital deployment strategy and enter into an agreement to acquire Ironshore.

Under the terms of the proposed Ironshore acquisition, Collegium will acquire all the outstanding shares of Ironshore for $525 million in cash at closing. Collegium will also pay Ironshore shareholders $25 million in additional consideration if Jornay PM net revenue exceeds a defined threshold in 2025.

The all-cash consideration will be funded by approximately $200 million of Collegium's existing cash on hand and approximately $325 million of our new $646 million secured financing from Pharmakon.

$320.8 million of the new term loan was used to replace our prior term loan with Pharmakon, reducing our interest rate on this balance by 300 basis points.

Our reduced interest rate enables us to keep our interest expense for the next 12 months relatively stable, including the funding of an acquisition that is poised to add a new lead growth driver, Jornay PM.

In addition to the significant improvement in our cost of capital, the new term loan also has a longer term, lower amortization and more prepayment flexibility. We expect the transaction to be immediately accretive to adjusted EBITDA while being highly accretive to 2025 adjusted EBITDA.

The acquisition is expected to close in the third quarter of 2024, subject to customary closing conditions, including receipt of required regulatory approvals. We are reaffirming our 2024 financial guidance for the current business, not including the impact of the proposed acquisition of Ironshore.

We expect net product revenues in the range of $580 million to $595 million. We expect Belbuca revenue growth in 2024 to be fueled by full year prescription growth. We expect 2024 revenue growth for Xtampza ER to be driven by gross to net improvement.

For the Nucynta Franchise on a full year basis due to the elimination of the Medicaid cap by the American Recovery Act, we expect some pressure on the Nucynta Franchise year-over-year revenues in 2024 with a return to relative year-over-year stability in 2025.

We expect adjusted operating expenses in the range of $120 million to $125 million, with expenses being lower in the second half of the year as compared to the first half of the year, and adjusted EBITDA in the range of $380 million to $395 million.

We plan to provide updated 2024 financial guidance for the combined business, including Ironshore, after the acquisition closes. 2024 Jornay PM net revenue is expected to be in excess of $100 million. With our strong financial performance in the first half of the year, we are well positioned to deliver on our financial commitments for 2024.

As we look beyond this year, our outlook for our pain portfolio in 2025 and beyond continues to meaningfully improve due in part to milestones we achieved this year, including the authorized generic agreement with Hikma Pharmaceuticals and the six-month pediatric exclusivity extension for the Nucynta Franchise.

And lastly, the Medicare Part D redesign in 2025 will serve as a tailwind for our pain portfolio, in particular for Xtampza ER. We anticipate the continued strength of our pain portfolio to support our expansion into neurology and for total company growth to be bolstered by Jornay PM.

Our capital deployment strategy is focused on creating long-term value for our shareholders by executing on business development, paying down debt and opportunistically returning capital to shareholders.

Our acquisition of Ironshore meets each and every one of our business development criteria, and we will be focused on closing the transaction, integrating Ironshore and maximizing Jornay PM. With the transaction, we secured a new term loan that replaces our existing loan at significantly improved terms.

We estimate that our net leverage at year-end will be less than 2 times based on estimated fiscal year 2024 pro forma combined EBITDA. We expect that our significant cash flow generation post transaction will enable us to delever and maintain a strong balance sheet to fund our growth going forward.

We also strategically managed our balance sheet and reduced debt by redeeming the $26.4 million total principal amount of our 2026 convertible senior notes in all cash. We remain dedicated to creating value for our shareholders through opportunistically leveraging our $150 million share repurchase program as part of our capital deployment strategy.

We recently repurchased $35 million through an accelerated share repurchase program at an average price of $32.94 per share. We have $150 million remaining in the program. I will now turn it over to Scott to give a commercial update..

Thanks, Colleen. At Collegium, we take pride in being a leader in responsible pain management with a unique and differentiated portfolio of products for the treatment of pain. Belbuca, Xtampza ER and Nucynta ER collectively command over half of the branded ER market, demonstrating the ongoing strength and reach of our portfolio.

Our commercial organization is focused on continuing to drive momentum for our products in order to make a positive impact on the lives of people living with pain and the communities we serve. Belbuca continued to grow in the second quarter.

Prescriptions grew 2.1% compared to the second quarter of 2023, marking the fourth straight quarter of year-over-year prescription growth. We're encouraged by this consistent prescription growth, including 1.4% growth in the second quarter compared to the first quarter and the impact that our strong commercial execution is having in the marketplace.

We believe Schedule III products should be used before Schedule II and used more broadly. Belbuca is uniquely positioned because of its clinical differentiation as a Schedule III product with a broad range of doses for the management of severe and persistent pain that requires an extended treatment period.

Our commercial team is focused on delivering this message to healthcare professionals and building upon our commercial execution. Our priorities for Belbuca include pulling through Belbuca's strong commercial access, improving push-through in Medicare Part D and expanding Medicare Part D coverage.

Belbuca revenue growth in 2024 is expected to be driven by prescription growth. Xtampza ER prescriptions were stable in the second quarter and in line with our expectations. We expect revenue growth for the full year to be driven by improved gross to net.

We're committed to educating physicians on Xtampza's differentiated label, pulling through our strong access position in commercial and Part D plans and securing new payer wins with available gross to net headroom. Our aspiration is to replace OxyContin utilization for appropriate patients.

The Nucynta Franchise is a key contributor to our pain portfolio. Tapentadol is a differentiated molecule with a proposed dual mechanism of action. It's viewed favorably, and it's highly differentiated by healthcare professionals.

The positive developments for the franchise, including the authorized generic agreement with Hikma and the six-month pediatric extension, along with our market access strategy, enable us to manage the Nucynta Franchise contribution in a relatively stable manner year-on-year beginning in 2025 and beyond.

We're excited to be a diamond sponsor and significant participant at PAINWeek this September. It's the largest pain conference in the US for healthcare providers. We'll have a significant commercial and medical presence and expect to present eight posters supporting our pain franchise.

This is a meaningful opportunity for Collegium to educate and engage with pain specialists across the country and expand the reach of our portfolio. Our participation further echoes our commitment to leading with the science.

We're thrilled to welcome Jornay PM into our portfolio of commercial assets and to expand our commercial presence into the large and growing ADHD market upon closing of the Ironshore acquisition. Jornay PM is a highly-differentiated product that can address an unmet need for patients and caregivers.

And it's poised for rapid growth as we look to leverage our commercial experience to maximize the brand's potential. The ADHD market has grown 5% on average over the past four years. And over the past few years, Jornay PM has delivered significant double-digit prescription growth.

In 2023, total prescriptions for Jornay grew 58% compared to 2022 to approximately 490,000. And through the first half of this year, Jornay PM prescriptions have grown 32% year-over-year. In addition, Jornay has a broad and growing prescriber base, approximately 15,000 prescribers every month and strong market access.

The ADHD business is concentrated to the commercial and the Medicaid segments, about 60% of the business in commercial and 40% in Medicaid. And Jornay PM has 80% coverage across these segments. With these strong fundamentals and clinical differentiation, we see significant opportunity for Jornay PM.

And we believe it has the potential to be Collegium's leading growth driver, complementing our continued leadership position in responsible pain management. In closing, in the second half of the year, we're focused on operational execution to drive momentum in our pain portfolio and integrate Jornay PM seamlessly into our portfolio.

We believe that we are well positioned for meaningful growth in 2025 and beyond. I'll now turn the call back to Mike..

Thanks, Scott. We are at a transformational time for Collegium. We are on track to deliver record financial performance this year as we maximize the value of our pain portfolio and deliver on the growth with Belbuca and Xtampza ER.

With the addition of Jornay PM upon closing of the Ironshore acquisition, we are expanding into a new therapeutic area with a differentiated product that is poised to become our leading growth driver. We are confident in our ability to achieve our strategic and financial commitments in order to create value for shareholders.

With a solid track record of execution and success, Collegium is well positioned for future growth. I will now open the call up for questions.

Operator?.

Thank. So, just have a couple. First, on Belbuca, and I joined late, so I apologize if I missed this in the prepared remarks, but can you talk about how you're thinking about improving Medicare Part D access for that product beyond this year? And just remind us what covered lives on Part D currently looks like? So that's number one.

And then secondly, in terms of the acquisition and the focus on ADHD and calling on psychiatrists, how do you think about additional transactions over the long term as you delever, as you're generating cash now that you're in this new therapeutic vertical? Would it be safe to say that you're going to look for additional assets that leverage the infrastructure that you're going to have in place? Thanks..

So, Scott, do you want to take that first question? Thanks, David, for the questions..

Yeah, that's great. I'll take that. Thanks, David. So yeah, so first and foremost, if you look at the current position of Belbuca, it's covered for about 30% of Medicare Part D lives. And as we look going forward in terms of improving that coverage, look, the focus is the clinical profile of the drug.

We believe that Schedule III should be used before Schedule II and used more broadly and that patients should have full access to the differentiated profile of Belbuca. So that's what we're engaging payers with is that clinical data, the data that only keeps getting stronger.

And then, we'll see where the dust settles when we get to November if we're able to achieve new wins in an economics that works for us..

Great. Thanks, Scott. And on the second question, David, about acquisition strategy going forward, I mean, clearly, we're going to be focused in the short term on integration and then growing the Jornay business, which will take a significant amount of effort. Subsequent to that, we'll be calling on a mix of pediatrics, neuropsych.

So, we will be sharpening our BD focus around those particular focus areas, which gives us a lot of optionality. And as you suggest, we will be looking to create synergy and as we build the business development strategy going forward..

Okay. That's helpful. Thanks..

Thank you. [Operator Instructions] Our next question comes from the line of Les Sulewski with Truist Securities. Please proceed with your question..

Great. Thank you for taking my questions, and congrats on the quarter. How do you balance the integration versus maintaining the performance you've been able to achieve across your current portfolio? And then second, on the update on the CEO search, has the Ironshore acquisition changed the focus on the potential candidate selection? Thank you..

Yeah. Thanks, Les, for the questions. From the standpoint -- I'll take the CEO search question. So the CEO search, as I mentioned in my comments, is ongoing and active and making good progress. And we've seen some really good candidates.

Frankly, if anything, this has increased the interest because of the growth potential when we bring Jornay into the portfolio. So, we remain very focused on finding a top-tier candidate, and this has not changed the strategy at all.

Scott, do you want to take the first question?.

Yeah, sure, Mike. Yeah, thanks for the question, Les. And in terms of balance, it's very simple. We will maintain 100% of our pain sales force, marketing teams, the core commercial people focused on pain. And then, we will integrate a fully commercialized Jornay team in that sales force, and there will be no overlap.

Each will be focused on what they're responsible for, the pain group with continuing to maximize the value of that full portfolio of pain products and the Jornay PM team continuing to focus on the growth trajectory that's been started for Jornay. So that's our approach is really just keeping complete separation in our commercial efforts..

Great. Thank you..

Thank you. [Operator Instructions] And it looks like we have reached the end of the question-and-answer session. And I'll turn the call back over to Mike for closing remarks..

Thank you, everyone, for joining the call today. Have a great evening..

And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..