COLLEGIUM PHARMACEUTICAL, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, and in conjunction with management's discussion and analysis and our audited consolidated financial statements included in our Annual Report. The following discussion contains forward-looking statements that involve risks uncertainties and assumptions. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of many factors. We discuss factors that we believe
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could cause or contribute to these differences below and elsewhere in this
Quarterly Report on Form 10-Q, including those set forth under "Forward-looking
Statements" and "Risk Factors", as revised and supplemented by those risks
described from time to time in other reports which we file with the
OVERVIEW
We are building a leading, diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions. Our portfolio includes Xtampza ER, the Nucynta Products, Belbuca, Symproic, and Elyxyb.
Xtampza ER is an abuse-deterrent, extended-release, oral formulation of
oxycodone that was approved by the FDA in
The Nucynta Products are extended-release ("ER") and immediate-release ("IR")
formulations of tapentadol. Nucynta ER is indicated for the management of pain
severe enough to require daily, around the clock, long-term opioid treatment,
including neuropathic pain associated with diabetic peripheral neuropathy in
adults, and for which alternate treatment options are inadequate. Nucynta IR is
indicated for the management of acute pain severe enough to require an opioid
analgesic and for which alternative treatments are inadequate in adults. We
began shipping and recognizing product sales on the Nucynta Products in
On
Belbuca is a buccal film that contains buprenorphine, a Schedule III opioid, and
was approved by the FDA in
We believe the acquisition of Belbuca, Symproic, and Elyxyb strategically aligns with our mission to build a leading, diversified specialty pharmaceutical company committed to improving the lives of people suffering from serious medical conditions.
We are promoting our pain portfolio (Xtampza ER, the Nucynta Products, Belbuca,
and Symproic) to approximately 9,000 health care professionals who write
approximately 62% of the branded extended-release oral opioid prescriptions in
Outlook
We were historically not profitable and incurred net losses in each year since inception until 2020. Substantially all our net losses resulted from costs incurred in connection with selling, general and administrative costs associated with our operations and research and development programs, and we expect to continue to incur significant commercialization expenses related to marketing, manufacturing, distribution, selling and reimbursement activities.
The BDSI Acquisition diversifies and expands our business by adding Belbuca and
Symproic to our highly differentiated pain portfolio, and Elyxyb, as a new
product launch opportunity that provides entry into neurology. We expect the
addition of these products to further strengthen our financial position through
increased revenue scale, immediate and significant earnings accretion, and
accelerated cash flow generation, driven by synergies of merging operations.
While we incurred significant transaction costs and other acquisition related
expenses during the period ended
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operations for the remainder of 2022. In addition, we expect the step-up basis in inventory to impact our results of operations until all acquired inventory is sold, which we expect to occur no later than one year after the Acquisition Date.
As of the date of the filing of this Quarterly Report on Form 10-Q, we expect the COVID-19 pandemic and actions taken to contain it to continue to impact our revenue. Notwithstanding the lifting of COVID-19 restrictions in many jurisdictions, and amidst continuing public health concerns relating to the spread of COVID-19, weekly pain patient office visits continue to be depressed compared to pre-COVID periods, which in turn may account for fewer patients beginning therapy with our products. We believe that the disruptions caused by COVID-19 will continue and there remains substantial uncertainty as to when such disruptions will cease.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as "critical" because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates-which also would have been reasonable-could have been used, which would have resulted in different financial results. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our consolidated financial statements, refer to our Annual Report.
Changes in our critical accounting policies with respect to our Annual Report include business combination accounting and valuation of acquired assets, including goodwill and intangible assets, as described below.
Business Combination Accounting and Valuation of Acquired Assets
We completed the BDSI Acquisition on
The acquisition method of accounting requires that we recognize the assets
acquired and liabilities assumed at their acquisition date fair values.
While we use our best estimates and assumptions as part of the process to value
assets acquired and liabilities assumed at the acquisition date, our estimates
are inherently uncertain and subject to refinement. During the measurement
period, which occurs before finalization of the purchase price allocation,
changes in assumptions and estimates that result in adjustments to the fair
values of assets acquired and liabilities assumed, if based on facts and
circumstances existing at the acquisition date, are recorded on a retroactive
basis as of the acquisition date, with the corresponding offset to
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RESULTS OF OPERATIONS
Three Months Ended March 31,
2022 2021
(in thousands)
Product revenues, net $ 83,751 $ 87,721
Cost of product revenues
Cost of product revenues (excluding intangible
asset amortization) 16,332 15,328
Intangible asset amortization 18,923 16,795
Total cost of products revenues 35,255 32,123
Gross profit 48,496 55,598
Operating expenses
Research and development 3,983 2,930
Selling, general and administrative 54,528 31,476
Total operating expenses 58,511 34,406
(Loss) income from operations (10,015) 21,192
Interest expense (5,831) (5,721)
Interest income 4 3
(Loss) income before income taxes (15,842) 15,474
(Benefit from) provision for income taxes (2,773) (188)
Net (loss) income $ (13,069) $ 15,662 Comparison of the three months ended
Product revenues, net
Product revenues, net were
The decrease in net product revenues for Xtampza ER of
The decrease in net product revenues for the Nucynta Products of
The increase in net product revenues for Belbuca of
Cost of product revenues
Cost of product revenues (excluding intangible asset amortization) was
Intangible asset amortization was
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Operating Expenses
Research and development expenses were
Selling, general and administrative expenses were
an increase in acquisition related expenses classified as selling, general and
administrative of
? advisory, banking, legal, and regulatory fees, other consulting fees,
employee-related severance expenses, BDSI directors and officers insurance, and
miscellaneous other acquisition expenses incurred; which was partially offset
by
a decrease in salaries, wages and benefits of
? into a plan to reduce our workforce, primarily our salesforce, in the fourth
quarter of 2021.
As a result of the BDSI Acquisition, we expect to incur additional acquisition related expenses relating to consulting fees, contract termination costs, and other integration related expenses during the remainder of 2022.
Interest expense and Interest income
Interest expense was
Taxes
Benefit from income taxes was
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
We have incurred cumulative net losses and negative cash flows from operations
since inception until 2020. Historically, we have funded our operations
primarily through the private placements of our preferred stock and convertible
notes, public offerings of common stock and convertible notes, and commercial
bank debt. We are primarily dependent on the commercial success of Xtampza, the
Nucynta Products, and Belbuca. During the three months ended
We believe that our cash and cash equivalents at
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Borrowing Arrangements
On
The 2022 Term Loan will mature on the 48-month anniversary of the closing of the
BDSI Acquisition and is guaranteed by our material domestic subsidiaries. The
2022 Term Loan is also secured by substantially all of our assets and our
material domestic subsidiaries. The 2022 Term Loan will bear interest at a rate
based upon LIBOR (subject to a LIBOR floor of 1.20%), plus a margin of 7.5% per
annum. As of
The 2022 Loan Agreement permits voluntary prepayment at any time, subject to a prepayment premium. The prepayment premium is equal to 2.00% of the principal amount being prepaid prior to the second-year anniversary of the closing date, or 1.00% of the principal amount being prepaid on or after the second-year anniversary of the closing date. The 2022 Loan Agreement also includes a make-whole premium in the event of a voluntary prepayment, a prepayment due to a change in control or acceleration following an Event of Default (as defined in the 2022 Loan Agreement) on or prior to the second-year anniversary of the closing date, in each case in an amount equal to foregone interest from the date of prepayment through the second-year anniversary of the closing date. A change of control also triggers a mandatory prepayment of the 2022 Term Loan.
The 2022 Loan Agreement contains certain covenants and obligations of the parties, including, without limitation, covenants that limit our ability to incur additional indebtedness or liens, make acquisitions or other investments or dispose of assets outside the ordinary course of business. Failure to comply with these covenants would constitute an event of default under the 2022 Loan Agreement, notwithstanding our ability to meet our debt service obligations. The 2022 Loan Agreement also includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the 2022 Loan Agreement and execution upon the collateral securing obligations under the 2022 Loan Agreement.
Cash Flows
Three Months Ended March 31,
2022 2021
(in thousands)
Net cash used in (provided by) operating activities
(572,177) (428)
Net cash provided by (used in) financing activities 517,764 (11,468)
Net (decrease) increase in cash, cash equivalents
and restricted cash $ (79,728) $ 8,674 Operating activities. Cash used in operating activities was
Investing activities. Cash used in investing activities was
Financing activities. Cash provided by financing activities was
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Funding Requirements
We believe that our cash and cash equivalents as of
Certain economic or strategic considerations may cause us to seek additional cash through private or public debt or equity offerings. Such funds may not be available when needed, or, we may not be able to obtain funding on favorable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our products. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing shareholders, increased fixed payment obligations and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.
Our forecast that our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. The amount and timing of future funding requirements, both near- and long-term, will depend on many factors, including:
? the generation of reasonable levels of revenue from products sales;
? the cost of growing and maintaining sales, marketing and distribution
capabilities for our products;
? the cost of patent infringement litigation, which may be expensive to defend;
? the cost of litigation related to opioid marketing and distribution practices;
? the timing and costs associated with manufacturing our products, for commercial
sale and clinical trials; and
? the effect of competing technological and market developments.
If we cannot capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected.
ADDITIONAL INFORMATION
To supplement our financial results presented on a GAAP basis, we have included information about certain non-GAAP financial measures such as adjusted EBITDA and adjusted operating expenses. We use these non-GAAP financial measures to understand, manage and evaluate our business as we believe they provide additional information on the performance of our business. We believe that the presentation of these non-GAAP financial measures, taken in conjunction with our results under GAAP, provide analysts, investors, lenders and other third parties insight into our view and assessment of our ongoing operating performance. In addition, we believe that the presentation of these non-GAAP financial measures, when viewed with our results under GAAP and the accompanying reconciliations, provide supplementary information that may be useful to analysts, investors, lenders, and other third parties in assessing our performance and results from period to period. We report these non-GAAP financial measures to portray the results of our operations prior to considering certain income statement elements. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, net income or other financial measures calculated in accordance with GAAP.
In our quarterly and annual reports, earnings press releases and conference calls, we may discuss the following financial measures that are not calculated in accordance with GAAP, to supplement our consolidated financial statements presented on a GAAP basis.
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Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income adjusted to exclude interest expense, interest income, the benefit from or provision for income taxes, depreciation, amortization, stock-based compensation, and other adjustments to reflect changes that occur in our business but do not represent ongoing operations. Adjusted EBITDA, as used by us, may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.
There are several limitations related to the use of adjusted EBITDA rather than net income, which is the nearest GAAP equivalent, such as:
adjusted EBITDA excludes depreciation and amortization, and, although these are
? non-cash expenses, the assets being depreciated or amortized may have to be
replaced in the future, the cash requirements for which are not reflected in
adjusted EBITDA;
we exclude stock-based compensation expense from adjusted EBITDA although (a)
it has been, and will continue to be for the foreseeable future, a significant
? recurring expense for our business and an important part of our compensation
strategy and (b) if we did not pay out a portion of our compensation in the
form of stock-based compensation, the cash salary expense included in operating
expenses would be higher, which would affect our cash position;
? adjusted EBITDA does not reflect changes in, or cash requirements for, working
capital needs;
? adjusted EBITDA does not reflect the benefit from or provision for income taxes
or the cash requirements to pay taxes;
? adjusted EBITDA does not reflect historical cash expenditures or future
requirements for capital expenditures or contractual commitments;
we exclude restructuring expenses from adjusted EBITDA. Restructuring expenses
? primarily include employee severance and contract termination costs that are
not related to acquisitions. The amount and/or frequency of these restructuring
expenses are not part of our underlying business;
we exclude litigation settlements from adjusted EBITDA, as well as any
? applicable income items or credit adjustments due to subsequent changes in
estimates. This does not include our legal fees to defend claims, which are
expensed as incurred;
we exclude acquisition related expenses as the amount and/or frequency of these
expenses are not part of our underlying business. Acquisition related expenses
include transaction costs, which primarily consisted of financial advisory,
? banking, legal, and regulatory fees, and other consulting fees, incurred to
complete the acquisition, employee-related expenses (severance cost and
benefits) for terminated employees after the acquisition, and miscellaneous
other acquisition expenses incurred; and
we exclude recognition of the step-up basis in inventory from acquisitions as
? the amount and/or frequency of these expenses are not part of our underlying
business.
Adjusted EBITDA for the three months endedMarch 31, 2022 and 2021 was as follows: Three Months Ended March 31, 2022 2021 GAAP Net (loss) income$ (13,069) $ 15,662 Adjustments: Interest expense 5,831 5,721 Interest income (4) (3)
(Benefit from) provision for income taxes (2,773) (188) Depreciation
715 439
Amortization 18,923 16,795
Stock-based compensation expense 6,135 6,879
Acquisition related expenses 27,167 -
Recognition of step-up basis in inventory 603 -
Total adjustments $ 56,597 $ 29,643
Adjusted EBITDA $ 43,528 $ 45,305
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Adjusted EBITDA was
Adjusted Operating Expenses
Adjusted operating expenses is a non-GAAP financial measure that represents GAAP operating expenses adjusted to exclude stock-based compensation expense, and other adjustments to reflect changes that occur in our business but do not represent ongoing operations.
Adjusted operating expenses for the three months endedMarch 31, 2022 and 2021 were as follows: Three Months Ended March 31, 2022 2021 GAAP Operating expenses$ 58,511 $ 34,406 Adjustments: Stock-based compensation 6,135 6,879 Restructuring - - Litigation settlements - - Acquisition related expenses 27,167 - Total adjustments 33,302 6,879
Adjusted operating expenses
Operating expenses, excluding stock-based compensation was
CONTRACTUAL OBLIGATIONS
With the exception of the 2022 Term Loan as discussed in Note 11, Term Notes Payable, there have been no material changes to the contractual obligations and commitments described under Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report.
OFF-BALANCE SHEET ARRANGEMENTS
We did not have during the periods presented any offbalance sheet arrangements,
as defined under
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