Hi, good afternoon. Welcome to Needham's 23rd annual healthcare conference. I'm Serge Belanger, one of the analysts at Needham for next session. Happy to have the Collegium Pharmaceutical team with us. We have the company's President and CEO, Joe Ciaffoni, as well as the company's CFO, Colleen Tupper with us. I'll hand it over to Joe. I think he'll give us a bit of an overview of the company, and then we'll move on to questions. For those listening, you do have the option to submit questions. I think it's in the portal that you're watching the presentation on. Alternatively, you can also email them to me, and I'll ask them as they come in. That being said, I'll hand it over to you if you want to give us just a quick overview of the company.
All right.
To start off with.
Great. Thanks, Serge. And on behalf of Colleen, myself, the Collegium team, thank you and your colleagues at Needham for inviting us to the conference and for giving us this opportunity. As you know, Collegium, you know, from a mission perspective, we're committed to building a leading, diversified, specialty pharmaceutical company, committed to improving the lives of people living with serious medical conditions. I always like to start with that mission, because that's what unites our organization. 2023 for the organization was really a banner year, and we delivered upon what we were setting out to. That gave us a great setup for 2024. From an operational priority perspective, we're anchored to this year. Our focus is really operational execution on two dimensions, one from a financial perspective.
If we're able to achieve the guidance that we gave at the beginning of the year, it will be a record year for the company across virtually every financial metric. The second thing we're focused on is deploying capital to create value for our shareholders in terms of what we know we're going to do this year. We know we're going to continue to rapidly pay down our debt, and we will also continue to opportunistically leverage our share repurchase program. In January, our board approved another $150 million share repurchase program. So we're encouraged by the start to the year. If we execute against these two priorities, the company gets stronger every day, and we'll be well positioned to strike, from a business development perspective when the right deal is there, and importantly, when it's there at a price, that we believe makes sense for our shareholders.
Great. So as you mentioned, you had a really solid 2023, and I think that the fourth quarter was very strong.
Mm-hmm.
giving you momentum heading into 2024. So maybe if we can start with Xtampza, what you expect the product to do in 2024 in terms of volume and obviously growth. Gross-to-net is still, I think, a topic that's relevant for that product.
Yeah.
So.
Yeah. Sure. So look, with Xtampza, what we're confident in is it will be another year of revenue growth. I always like to highlight, because I think it's such a significant and unusual accomplishment. Over the past two years, we've been able to renegotiate contracts that represent or cover 84% of all Xtampza prescriptions. I would say it may not be, but if it isn't, there aren't many. So I'll call it unprecedented examples of where, in a highly genericized category, you're able to materially roll back rebates and maintain access in 70%-77% for 77% of the opportunity. That being said, we did come off formularies that account for 22% of those prescriptions. So to your question directly this year with Xtampza, we expect to see some pressure on prescriptions and revenue growth to be driven by the improvement in gross-to-net.
Gross-to-net, when we issued our guidance, we did highlight that we do expect Xtampza gross-to-net to further improve to 56%-58% this year.
Okay. For those who track scripts on IQVIA, I think we've seen kind of a 5%-6% erosion from fourth quarter to first quarter in terms of volumes on Xtampza.
Yeah.
At this point, should we expect any more erosion, or this is the new base on which we could see some growth?
Yeah. I think what we've seen to this point is in line to our expectations. So there's two dynamics at play in the first quarter. One, when deductibles reset, in particular in genericized categories, branded products experience pressure. And then we did come off of a couple formularies. What we've seen towards the end of the quarter on a weekly basis, sequentially, we're starting to see the stability we've expected. And for the remainder of the year, once you get out of the first quarter, I would expect to see the brand be pretty stable, or, if anything, see a modest uptick. So, you know, we're encouraged by what we've seen to this point.
Got it. And we talked about gross-to-net a little bit earlier. This kind of seasonality a little bit, or quarterly trends around that gross-to-net, maybe just highlight them. So I think it's important ahead of the first quarter and thinking for the rest of the year how that those will impact sales.
Sure. Colleen.
So for Xtampza, and really across most of our portfolio, but particularly Xtampza, what we see is seasonality in our gross-to-net, particularly in the middle of the year when we have the significant coverage gap rebates, and that's the donut hole. So what you would expect is the first quarter gross-to-net rate is usually most favorable. It gets worse through the second and third quarter, and in those two periods is where you have most of your coverage gap rebating, and then it improves in the fourth quarter, but never quite as good as the first. And so you do see that seasonal dynamic continue in 2024. And we would only expect that to change next year when Medicare redesign creates an opportunity for Xtampza, because we will qualify for the phase-in of the new Medicare program.
Got it. And then, Joe, looking long term at this product, I think you've mentioned there's no significant contract renewals for that that are going to happen this year. The next batch is probably for next year. What are you expecting? I mean, should we expect something similar to what occurred in 2023, or more like 2022, where there was a much bigger bolus of contract renewals?
You know, it's a great question. What I would say we're at an interesting point with Xtampza as we're past the first opportunity to renegotiate a bulk of the contracts, where, if you think about it historically, earlier on, we were in a phase of always adding new significant wins. Then we went to phase 2, which was renegotiating, where it is we're on formulary. What we are confident in is our ability to consistently grow revenue with Xtampza from now through loss of exclusivity. How that will happen is something that will be determined each year based off of what we accomplish with the payer. So it could be driven by new payer wins. We've committed, as you know, to forever managing Xtampza at less than 65%. Obviously, at that 56%-58% level, we gave context on. We have a lot of opportunity to add new wins.
In addition, although there's fewer this year, there are opportunities to renegotiate. I think the one thing Colleen said, as people think about 2025 that they shouldn't lose sight of, is the Part D redesign is going to be a meaningful benefit or tailwind to Xtampza. So the brand is in a good position.
From a potential generic impact on this market, either on Xtampza or on OxyContin, what's your current thinking?
Well, look, if you look at Xtampza, there's only been one ANDA filer, and we have a settlement in place with them. That's with Teva. And look, at the end of the day, we'll see what Teva chooses to do or not to do as it pertains to the opioid market. When you think about upside scenario across our portfolio, a lot of it ultimately would be determined by whether Teva chooses to ever launch another opioid or not. And I think that's TBD.
Got it. Okay. So on Belbuca, you've now had the product in your hands for, I guess, it's going to be almost two years now.
Mm-hmm.
How do you view that product for 2024?
Yeah.
In terms of growth driver?
Sure. Well, look, I'm going to take a step back, because I think Scott Dreyer and his team deserve a lot of credit and recognition. Belbuca was, for us, a far more complicated for our sales team product to sell. We had said initially, when we were seeing pressure on scripts, as we learned how to educate physicians on it and have confidence in presenting it, we could return it to growth. And that's what we saw in the third quarter. That picked up in the fourth quarter. And what we're really excited about this year is, historically, for Belbuca, the first quarter has always been tough, because of deductibles resetting and the fact that we were able to grow Belbuca prescriptions 4% year-over-year in the first quarter for us is a highly encouraging trend.
One of the things that I also like to highlight when we talk about it is, if you look back at 2023, Belbuca didn't achieve over 9,000 prescriptions to the middle of May. It didn't start to do it consistently till you got to the end of June and July. We've been running up above those levels, with the exception of holiday weeks, most of the first quarter. We're really excited about what we're seeing with Belbuca.
Okay. And this is a product that you inherited. I think it had strong commercial coverage.
Yeah.
Medicare Part D was a little less. I think it's been a focus for you guys. Just curious what kind of movement we should see on that coverage. Maybe by then typically announces new plans in November, but should we expect some news around that time frame?
Well, what I can commit to is we're going to work hard, because, as a leader in responsible pain management with a product with the unique profile of Belbuca in the midst of an opioid epidemic, to unlock Medicare Part D. Today, Belbuca is only covered for about 17% of lives. And to the degree we're successful beyond the growth that you're seeing through improved execution, that could be something meaningful beyond 2024. So we're going to fight that fight, because it's the right thing to do for patients and to give physicians the easiest path to prescribe it. And the clinical profile merits it. And to the degree we're successful, that would be meaningful for Belbuca.
Okay. And gross-to-nets here have been fairly stable. With an expansion to Medicare Part D, did that start pressuring gross-to-nets down a little bit?
If we're successful, it could put pressure on gross-to-net, but the strategy would be much different than what we did with Xtampza. So any new ANDA, even if it pressured gross-to-net, would be driving increased revenue and profitability out of the gate.
Okay. And then I think the IP and potential litigation around this product is important. It's also complicated, so I'll just let you kind of highlight it and when you think you could get some additional clarity, visibility on it.
Yeah. So look, I'll share with you the base case assumptions we made when we did the BDSI acquisition.
Yeah.
Highlight what would represent an upside scenario. We had been looking at BDSI for several years. When we were assessing Belbuca in particular, there were three ANDA filers, and that's all there is to this day. There was a settlement in place with Teva for September of 2027 or January 2027, I believe. Is it January or September, Colleen?
January.
January 2027. I want to get that right. Now, what's interesting, and again, I'll highlight Teva, a key thing will be, will they launch or won't they? In our base case, we assume they do, but I think it's reasonable to put a question mark there. They don't have tentative approval, and they've also relinquished their first file exclusivity, which I wouldn't say is unprecedented, but that's uncommon for a generic company to do. The second ANDA filer was the one that we were concerned about and why we didn't pull the trigger sooner, and that's Alvogen. And what was different about Alvogen, or what is different, is they have an approved product. So that litigation outcome was important to us. BDSI got a favorable ruling, which upheld the 2032 patent. So Alvogen is barred from entering the market with that formulation.
The third ANDA filer, which candidly, for us, was a lesser concern, was Chemo. Chemo attached themselves to the Alvogen litigation from an invalidity perspective. So from that angle, they're barred till 2032 also. They are also pursuing non-infringement. Interestingly, they just got their fourth CRL last week, so they don't have a tentative approval. And I would just say that we believe it is very challenging, even if you had a product, to achieve all of the doses of Belbuca without infringing upon the IP. The final thing people should be aware of is there's an agreement with Par Pharmaceutical that in the event Teva did launch, there would be an authorized generic, so Belbuca would have a meaningful tail.
So obviously, then the reasonable upside scenario would be if Teva, in the face of everything they've experienced as it pertains to opioid settlement, along with where they're focused strategically, opts not to launch another opioid, that would represent that would make the BDSI deal. It would take it from a home run to a Grand Slam home run for Collegium and its shareholders.
Got it. So right now, the only certainty is the Alvogen product that's been approved and their agreement to 2032.
Yeah. They're barred from entering until 2032.
Got it. Okay. Great. So maybe before we move on to talk about Nucynta, if you can just talk about the role Belbuca plays vis-à-vis Xtampza, and maybe even vis-à-vis Nucynta, how much overlap there is and.
Yeah.
Agree.
It's a great question. Look, we're fortunate that we've compiled a portfolio of what we believe are best-in-class products, in particular in terms of the potential that they have to make a positive difference in the opioid epidemic. They're viewed favorably by healthcare providers. They're highly differentiated, and for the most part, they're distinctly positioned. So, you know, Belbuca is generally seen as a more mild to moderate analgesic, and that's because of the dose limitations, the dosing limitations of the Butrans patch. So our belief, but it's not how it's utilized, is that Belbuca should be the first choice for every patient that needs a chronic, an extended-release opioid to treat their chronic pain, because it's Schedule III, and because of that, it has less potential for addiction. So we think of Belbuca first. After all, non-pharmacologic and non-opioid pharmacologic treatments have been explored.
Xtampza ER, oxycodone, is seen as for more severe patients and seen as a more potent analgesic. At the end of the day, what we're trying to do with Xtampza ER is replace OxyContin. We do not believe, because of the deterrence technology, how it's performed in the real world, there's ever a reason why somebody should write a prescription of OxyContin. And then Nucynta, its niche, because it's the only opioid with an indication for diabetic peripheral neuropathy, is in that niche. So though there really isn't a lot of overlap, in how it is that they're actually used today.
Okay. So Nucynta, very stable franchise at this point. I think you've taken annual price increases, and that's allowed the franchise to continue generating the same kind of revenue levels. Any update on the pediatric potential extension of the IP?
Yeah. So we expect to know in the back half of this year about the six-month pediatric extension for Nucynta ER and IR. I would say we're very confident. From our internal planning perspective, we view that as part of our base case. So it's not certain to happen, but we're very confident that we will get those six-month pediatric extensions.
Got it. And that brings the you'll have to remind me the dates, but the ER, the IR product goes longer than the product. Is that correct?
That's right. Last year, we got a new patient population exclusivity, which then made them different dates. So Nucynta IR goes to July 2026. If it were to get the six-month extension, it would go to January 2027. Nucynta goes to July 2025. With the extension, it would go to January 2026. And then we'll see there, if you look at Nucynta as the first up, there are three generics that can launch. One of them cannot launch until 2028. The other two could launch in July 2025 or January 2026. One of them is Teva. And what I would say is interesting with tapentadol, unlike oxycodone and hydrocodone, the API isn't as readily available. And there are three DMFs in the United States that are at a clinical trial scale, not commercial scale.
For them to get to commercial scale is a two- to three-year time frame and a $10 million-$15 million investment. We're watching that closely to see if anybody starts to scale up. To date, that hasn't occurred.
Okay. So, does Teva decision in January 2026, or yeah?
Yeah. Teva could enter Teva could enter in January of 2026.
So that could give you the first indication for future decisions on Belbuca and Xtampza, in terms of their appetite to reenter the opioid market?
That's right. That will give us a first read. What I should have said, and I'll add to my comment on Belbuca, is we will invest through 2027 in support of Belbuca. And if they happen to launch, then we would have spent around in support of the product longer than we should have. But we'll invest through that window and see what it is they choose to do.
Got it. Okay, business development, it's been a priority for a while. Has the level of prioritization changed over that time, or it remains stable and, you know, are the same key criteria as for an asset, have not changed?
Well, look, what I would say, the criteria for the asset hasn't changed. We're focused on commercial stage. We're, for the most part, agnostic to therapeutic area, $150 million peak sales potential and exclusivity into the 2030s. The other thing I would say is what has also not changed is our belief in the financial strength and durability of our revenue. If anything, our out-year outlook, so beyond 2024, continues to be strengthened, which gives us the ability to be disciplined and really wait for the right deal at the right price. I said on our last earnings call that every company, both from a private and public perspective, that we have been engaged with over the past year, one, they're still on the board. The second thing is there really hasn't been a material rebound for the public companies in terms of their share price.
Okay.
If anything, our view of the products, they've been performing more in line to our expectations. And so that really reinforces to us, continue to be disciplined, time is on our side, and ultimately, we'll get the right deal at the right price. So I think the strength of our position, we want to do the right deal. We don't have to do any deal. So we'll be disciplined in our approach.
Okay. And you mentioned you were agnostic to therapeutic indication. Is, I think, in the past you said you'd stay away from oncology; is that still the case, or?
Yeah. What we know we wouldn't do is oncology. We wouldn't do anything that requires a big primary care infrastructure.
Sure.
Beyond that, we're pretty agile. We have highlighted in the past neurology is an area.
Yeah.
It's a logical adjacency to pain. We have a lot of people within our organization that come from neurology backgrounds.
Got it. And like I mentioned, it's been a priority for a few years. So the longer it takes, the more dry powder you accumulate.
Right.
Obviously, I think the share price has also had a.
Uh-huh.
A nice move up here. So does that change how you could finance this, or maybe even the size of a potential deal?
Uh-huh. Colleen?
It does, Serge. It's a consideration. It really depends on the transaction itself, on how we choose to finance it. What we've said in the past from a debt perspective is we'd be comfortable going up to 3x net debt to EBITDA. We're right now sitting at about one, and we'll be about zero by the end of this year because we're rapidly deleveraging. Depending on the dynamics in relative valuations in the two companies, we wouldn't be afraid to use equity either.
Okay.
Of course, we have cash on our balance sheet. We ended 2023 with over $310 million.
Got it. And then I think at the top of the call, you also mentioned capital allocation priorities, the main one being paying down debt, which you just rementioned, but returning capital to shareholders. I think that's been a consistent aspect of the priority. How should we think about it?
Colleen?
Yeah. So we've opportunistically leveraged share repurchase programs over the recent years. To date, we've acquired about $137 million of our shares back at an average price of $21.65. The last program we had announced inactive was in the fourth quarter. That was an accelerated share repurchase of which we were buying back shares at an average of $27.09. So at the start of 2024, we announced a new share repurchase program that our board has authorized. That is for $150 million over 18 months. So through calendar 2024 and and brings you through halfway of 2025.
Okay. Maybe, Colleen, as far as financials here, one of the questions we get often is, where are you in terms of tax rate and if there's any NOLs left that could impact that tax rate?
Yeah. That's a great question. So I would say I would consider us from a roughly 28% tax rate. You know, we are now in the realm of tax paying. As of the end of 2023, we have about $137 million left in federal NOLs, which includes the NOLs acquired through the BDSI transaction. We were able to utilize about $90 million in 2023. So that remaining $137 million will be limited over the next few years and wound down at a slower pace.
Okay. Maybe to wrap up, Joe, at this point, anything about the Collegium that you feel is still misunderstood by investors in terms of the portfolio or just the overall strategy of the company?
No. You know what? I think the beauty of our story, the elegance is in the simplicity and that it's really about executing on the current business as it exists and being good stewards of capital and striking and in doing that, continuing to strengthen the company. So we're positioned to strike when the right deal is there at the right price.
Got it. Okay. Well, thank you both for spending time with us this afternoon. Appreciate the update, and we'll keep our eyes out for any BD developments.
Okay. Great. Thanks, Serge.
Thanks, Serge.