COLL - Collegium Pharmaceutical: Delivering On Promises

2023-10-24 14:59:23 ET

Summary

• Today, we revisit Collegium Pharmaceutical, Inc., which has seen a 30% increase in its stock price since our last look at it in June 2022.
• Collegium Pharmaceutical has done a good job integrating Belbuca into its product portfolio, paying down debt and recently accelerating a stock buyback program.
• We take a look at the company's future prospects in the paragraphs below.

The truth is incontrovertible. Malice may attack it, ignorance may deride it, but in the end, there it is .”? Winston S. Churchill.

We have not taken a look at Collegium Pharmaceutical, Inc. ( COLL ) since June of 2022. The stock has hung in there well since that article , given the carnage across the small biopharma/biotech space since early in 2021. The shares are up some 30% since that last analysis. Therefore, it seems a good time to circle back on Collegium in front of Q3 results ( expected post-market on November 3rd), that should be out in soon. An updated analysis follows below.

Company Overview:

Collegium Pharmaceutical is headquartered just outside of Boston in Stoughton, MA. The company is focused on developing and marketing medicines for pain management. The stock currently trades just above $21.00 a share and sports a market capitalization of approximately $750 million.

The company's product portfolio consists of several pain management products. These include Xtampza ER (Extended release) which was developed using Collegium's abuse-deterrent technology, DETERx. Xtampza ER is an extended-release version of oxycodone for the management of pain severe enough to require around-the-clock, long-term opioid treatment for which alternatives are inadequate. This oral capsule is patent protected until September 2033.

The company also has the Nucynta franchise. This consists of both Nucynta ER and Nucynta IR (immediate release) products. Both are different formulations of the opioid pain therapy tapentadol and Nucynta ER is the only ER drug indicated for pain associated with diabetic peripheral neuropathy.

Early in 2022, with the purchased of BioDelivery Sciences, formerly BDSI, the company acquired the rights to Belbuca. This is a buccal film delivered Schedule III opioid that delivered nearly $150 million worth of sales for its previous owner in FY2021. It should be noted that Belbuca only has patent exclusivity until early 2027.

Second Quarter Results:

Collegium Pharmaceutical posted Q2 results on August 3rd. The company delivered non-GAAP earnings per share of $1.26, four cents above expectations. GAAP net income came in at $13 million or 38 cents a share, a big rebound from the $5.2 million GAAP loss in the same period a year ago. Operating expenses also fell seven percent from Q2 2022 to $38.2 million.

Revenues rose nearly 10% on year-over-year basis to $135.5 million, some $3 million below the consensus. Sales growth was primarily driven by sales of Xtampza® ER which rose 24% from the same period a year ago to $41.2 million. Nucynta experienced eight percent revenue growth to $47.3 million. Nucynta recently had its U.S. market exclusivity extended by a year to July of 2026. Belbuca prescriptions rose 3.5% on year-over-year basis to just under 9,400. Belbuca net revenues rose two percent on a year-over-year basis to $43.1 million. BELBUCA, Xtampza and Nucynta ER now hold a combined 50% share of the branded ER market.

Adjusted EBITDA rose to $85.8 million in the quarter, a 21% improvement from 2Q2022. Management then confirmed FY2023 guidance as follows below.

Analyst Commentary & Balance Sheet:

Since second quarter results were posted, Piper Sandler ($37 price target), Needham ($36 price target, up from $35 previously) and Truist Financial ($31 price target, down from $33 previously) have all reiterated their Buy/Outperform ratings on the stock, while H.C. Wainwright has maintained its Hold rating.

Approximately 20% of the outstanding float in the stock is currently held short. Several insiders have sold shares so far in 2023. So far this year, they have disposed of approximately $5.5 million worth of equity, collectively. It should be noted in all cases, they retain the vast majority of their overall stakes in the firm.

The company ended the first half of 2023 with approximately $325 million worth of cash and marketable securities on its balance sheet . The company announced an accelerated $50 million stock buyback authorization at the time of its second quarter earnings release. This is part of a larger $100 million stock buyback program.

The company priced some $210 million of 2.875% convertible senior notes that are due 2029 in a private offering in early February prior to big move in interest rates we have seen in 2023. On its second quarter 10-Q , the company lists $261 million worth of convertible notes on its balance sheet as well as terms notes payable of approximately $310 million.

It should be noted that the company paid down nearly $71 million of net debt in the first half of 2023, reducing its leverage of net debt to adjusted EBITDA to 1.2x. Management's goal is to reduce this leverage to 1.0x by the of this fiscal year. Towards that end, it plans to pay down a bit over $160 million of debt in FY2023. The company had just over $4 million in interest expense in the second quarter.

Verdict:

The company lost 74 cents a share in FY2022 on revenues of nearly $464 million. The current analyst firm consensus has the company having profits of $1.03 a share as sales rise by some $100 million. Earnings per share are projected to leap to just over $2.75 a share in FY2024 on sales growth in the mid-single digits.

Collegium Pharmaceutical, Inc. stock is cheap based on FY2024 profit estimates. Nucynta and Belbuca will lose patent exclusivity in 2027. However, management has stated that " our base case long-range plan, net of paying off our term loan is that it will have greater than $1 billion of cash on hand at the end of 2027 ." The company has done a good job of integrating Belbuca within its product portfolio and driving growth while containing expenses.

If the company delivers on that promise, net cash in 2027 will be significantly higher than the current market capitalization of the company. Collegium will also still have its fast-growing Xtampza ER franchise and whatever " bolt on" assets leadership picks up between now and then.

Adding it all up, Collegium Pharmaceutical seems to merit an "accumulate" rating on any dips in the overall market. Investors will get another set of fresh data points when the company posts Q3 results in early November as well.

Situations are rarely black or white; the truth lies somewhere in-between .”? Frank Sonnenberg.

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