Greetings, and welcome to the Collegium Pharmaceutical Third Quarter 2022 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 is being recorded. I will now turn the call over to Dawn Schottlandt, at Argot Partners. Thank you. You may begin.

Welcome to Collegium Pharmaceutical's Third Quarter 2022 Earnings Conference Call. I am joined today by Joe Ciaffoni Collegium's, Chief Executive Officer; Colleen Tupper, Chief Financial Officer and Scott Dreyer, Chief Commercial Officer. Before we begin today's call, I 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 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 derive the expected benefits of the acquisition of BioDelivery Sciences International on the proposed schedule or at all, [Technical Difficulty] also reducing fully commercialize [ph] our products and that we may incur significant expenses and may not prevail in the current or future litigation pertaining to our business. 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 Collegium's CEO, Joe Ciaffoni.

Thank you, Dawn. Good afternoon, and thank you, everyone, for joining the call. Today, we will discuss our performance during the third quarter and through the first nine months of the year and provide perspective on our outlook for the remainder of 2024 and what we expect 2023 to be advanced [Technical Difficulty]. 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. During the third quarter, Collegium continued to support the communities where we live and work, highlighted by our charitable donation two and additional sponsorship of the MassBioEd Foundation's 2022 Life Science Workforce Conference. [Technical Difficulty] education, recruitment, inclusion and retention of a more diversified talent pool for our growing industry. MassBioEd is a non-profit which provides Life Science's educational programs to teachers and students of all backgrounds. We are also proud to have helped our second Annual Day of service in which are employees nationwide volunteered in service of organizations that are important to them. At our corporate headquarters on the day of service, we partnered with science from scientists packing over 400 STEM lesson kits, for underserved students in the Brockton, Massachusetts School System. We remain focused on growing our business and creating value for our shareholders. We do this by maximizing the potential of our differentiated portfolio, focusing on achieving our near-term operational and financial goals and strategically investing in our long-term growth. I want to thank the Collegium team for their hard work, dedication and commitment to our mission. 2022 has been a pivotal year for Collegium. Throughout the first nine months of 2022, we executed on our strategic priorities and delivered on the goals we communicated at the beginning of the year. We closed the financially transformative BDSI…

Thanks Joe. Good afternoon everyone. Q3 was another strong quarter for Collegium. We generated record revenue record adjusted EBITDA and leveraged our strong cash flows to pay down debt while returning cash to shareholders through the share repurchases. As a reflection of our execution, we increased our targeted run rate synergies for the BDSI acquisition to approximately $85 million. Collegium strengthened its financial position throughout 2022 and we expect to capitalize on this momentum in 2023. Financial highlights for the third quarter include total product revenue was a record $127 million for the third quarter an increase of 61% from the third quarter of 2021 and BELBUCA net revenue was $38.8 million in the third quarter of 2022. BELBUCA sales were impacted by a transient destocking of the channel at the end of the quarter. Xtampza ER net revenue was $38.8 million and Xtampza ER gross to net in the third quarter was 66%. The lower gross to net was primarily driven by a one-time benefit to returns which I will speak about shortly. For the full year 2022, we now expect gross to net to be less than 73% and starting in January 2023 as a result of the successful contract renegotiations, gross to net will be less than 65%. Nucynta franchise net revenue was $44.4 million in the third quarter. Operating expenses, which includes stock-based compensation expense, were $38.4 million in the third quarter compared to $32 million in the third quarter of 2021. Adjusted operating expenses, which excludes stock-based compensation and acquisition-related expenses, were $32.5 million in the third quarter an increase of 25% from the third quarter of 2021. Net income for the third quarter was $0.5 million. Income from operations was $20.5 million in the third quarter. Non-GAAP adjusted EBITDA was a record $74.9 million…

Thanks Colleen. I'm excited to report that we've successfully completed the contract renegotiations with plans that account for 54% of all Xtampza ER prescriptions. This is the top commercial priority in 2022 and it will fuel the acceleration of Xtampza ER revenue in 2023. I can now confirm with certainty that Xtampza ER gross to net will be less than 65% beginning in January. Importantly, in addition to materially rolling back rebates, we were able to maintain our exclusive and parity access positions for the vast majority of the renegotiation opportunity. Let me take a moment to highlight the results of the Xtampza ER contract renegotiations. In plans that represent approximately 90% of the current prescription base that was subject to renegotiation, Xtampza ER will maintain its exclusive ER oxycodone position or parity position with OxyContin. The plans where Xtampza ER maintained its exclusive position are both the largest plans and the plans that have demonstrated an ability to control and drive market share over the past several years. We expect volume growth from these plans in 2023. In plans that represent approximately 10% of the current prescription base that was subject to renegotiation. Xtampza ER will move to a non-formulary position. It's important to note that this change puts Xtampza ER in a parity position with OxyContin at these accounts. As a group, these plans are smaller and have demonstrated less control. We expect that the benefit of no longer paying discounts will offset any potential pressure on prescriptions. Overall, we expect to grow Xtampza ER volume and market share in 2023 in the accounts in which Xtampza ER maintained its access position at a level that offsets any potential pressure where Xtampza ER was moved to non-formulary. Lastly I want to emphasize that we have ample room to…

Thanks Scott. We are making significant strides forward as we build a leading diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions. 2022 has been a pivotal year for Collegium and we remain focused on executing our three-phase action agenda. I am encouraged by our progress in 2022 and confident that 2023 will be a banner year. I will now open the call up for questions.

At this time we will be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of David Amsellem with Piper Sandler. Please proceed with your question.

Hey, thanks. So I just had a few. So I just wanted to clarify. So you said, I think it was 54% of all Xtampza ER prescriptions represented by the contracts renegotiated. So I'm just sort of wondering the remaining Rxes, what are those? And is it just safe to say that you're at a place where it's status quo for next year? I just want to clarify there. So that's number one. Number two is you talked about Xtampza ER returning to volume growth next year. It's not just better economics. And the comments about better commercial execution certainly are not lost on me. But in the context of the shrinking oxycodone ER pie, what do you think just beyond commercial execution? In other words external factors do you think can get the product back to a more aggressive growth trajectory next year from a volume perspective? And then the same question is for BELBUCA again is growth of BELBUCA beyond commercial execution just predicated on more in-person office visits? What else do you think are factors that could get that product growing in a more aggressive direction? Thank you.

Great. Thanks, David. This is Joe. I'll take the first question and then hand the Xtampza and BELBUCA questions off to Scott. So when you think about the payer landscape as we move forward with regards to Xtampza ER. This year we had the opportunity to renegotiate with plans that represented 54% of prescriptions. Next year we'll have an opportunity to renegotiate with plans that account for another 30% of all prescriptions. And I think it's important that we also emphasize with what it is we accomplished we also have more than enough headroom to opportunistically go out and try to secure additional wins, which will also serve if we're successful in doing so as a catalyst for prescription growth with Xtampza ER. And then Scott, can take the other two questions.

Yes. Thanks David. And to your other two about the growth of Xtampza and BELBUCA, look first and foremost, again, we need to execute better. As I mentioned in my prepared remarks, these internal and external factors were a real thing in 2022. And so the way I look at it is there's the controllables and the non-controllables. From an external standpoint, those are non-controllables in terms of patient office visits and new to brand. But the fact of the matter is I believe that over time we'll see some bounce back there. The other thing is if you look at growth opportunity and I look at the market there's plenty of room for both brands to grow in the market. Xtampza is sitting with a 35% share in OER. So there's plenty of room for us to grow from there. And you look at BELBUCA same thing about a mid-30 share of the buprenorphine market plenty of opportunities to grow. So I don't see any issue with the markets in terms of us being able to grow. The last thing is on those internal factors look those are controllables and that's where all our focus is right now 100% of our focus is on those controllables and taking actions to grow next year. Lastly, the fundamentals of these brands are really strong. Still in market research the brands are viewed as highly differentiated really broad and growing prescriber bases and strong market access position. So all of that put together is what makes me feel confident that as we move into next year we'll be able to reinvigorate growth.

That's helpful. Thanks, guys.

Okay. Thanks,David.

Our next question comes from the line of Tim Lugo with William Blair.

Thanks for the excellent breakdown and congrats on the progress during the quarter. You answered a lot of my questions during David's question, but maybe if you weigh share buyback potential investing in the current franchise and additional development. Can you just talk to us about -- can you give us a sense of where these areas rank internally for capital deployment?

Sure, David. I'll -- or sorry Tim, I'll hand that one off to Colleen.

Hi, Tim. Thanks for the question. So as far as capital allocation priorities, they remain consistent with past discussions, which we will prioritize business development, seeking out commercial stage assets as our first priority. Our returns of our Pharmakon that we will be paying those down pretty rapidly with $100 million paid off in the first year, so paying down our debt, and then also opportunistically continuing to return capital to shareholders via the share buyback program. We have about $42 million remaining through the end of the year.

And Tim the only other thing, I would say, we're working through our planning process. If they're -- if we believe that there would be value in making additional investment in support of the current portfolio, obviously, we have the wherewithal to do that. When you look from a size structure, the big part of the cost structure we believe we're sized correctly, and there's not a need to make additional investment in the current in-line portfolio at least from the big parts of the cost structure.

Okay. Understood. And maybe digging back into BD a little bit more. Can you just give us a refresher on areas you're looking at? Obviously, I like to -- was something that came in BELBUCA and Hysingla [ph] previously. Can you just refresh us on opportunities and give us a sense of the opportunities that you come across?

Sure. Great question Tim. Look I think when we look at the current market environment, which we think is really conducive to getting a deal done, we're not thinking of it so much through the lens of a therapeutic priority, but are really anchored to, one, we're looking for assets that are meaningfully differentiated, which we think is critical for a multitude of reasons in particular reimbursement. The peak sales potential of over $150 million is the threshold that matters to us. And then, of course, we're looking for exclusivity into the 2030s. From a -- look if there was something in the pain space directly that leverages the infrastructure we have in place that certainly would be a preference. I've spoken in the past about neurology being an adjacency that we think makes sense, but when you -- when we assess the current market conditions, we want to be a little bit more flexible and opportunistic.

Understood. Thank you.

You bet. Thank you.

Our next question comes from the line of Brandon Folkes with Cantor Fitzgerald. Please proceed with your question.

Hi. Thanks for taking my questions and congratulations on the progress. Maybe just one for me following on from the earlier line of questioning. Do you have to compromise any gross-to-net in any of the other products in the portfolio, obviously, a much broader portfolio to achieve that expanse gross-to-net, or should we think of the other products remaining relatively stable across the portfolio in 2023 and expand a gross to nets improving to that less than 65%?

Sure. Thanks for the question, Brandon. I'll hand that one off to Colleen.

Thanks, Brandon. No, for the Xtampza renegotiation, there was no compromises or linked to any other products within our portfolio and broadly for the remaining products we do expect stability.

Thanks. And just one follow-up, sorry. This may have been asked in the first question. I missed the answer. Earlier in the year, I think we talked about 50% of contracts being renegotiated this year. I think you've talked about 54% on the call, and then maybe 30% next year. Is there -- is that how we should still think about it? Are there 30% of the Xtampza contracts up for renegotiation next year?

Yes, Brandon, this is Joe. There is an additional 30% of Xtampza contracts up for renegotiation in 2023. That's correct. And is your focus on those 30% now that you've achieved success on such a large majority of the contracts this year still going to be gross to net driven, or could we see something else where maybe that could be volume driven? How should we just think about if you have any change in your approach and the negotiation on those 30%?

Yes. So, great question. I think with existing contracts with Xtampza, the approach will be similar to what it is that we did from a renegotiation in 2022, which from our view really speaks to the value and the performance of Xtampza ER over time, and plans recognizing the clinical differentiation and the positive impact that Xtampza ER can make. The other point that is important to continue to emphasize is, we now have significant headroom, which enables us to opportunistically look to secure new payer wins when the opportunity presents itself. And if we're successful in doing so, that certainly would serve as a potential catalyst for prescription growth and market share gains.

Great. Thanks very much and congratulations again.

Great. Thanks, Brandon.

Our next question comes from the line of Serge Belanger with Needham & Company. Please proceed with your question.

Hi, good afternoon. Thanks for taking my questions. I guess the first one a follow-up on the first question. With 54% of contracts that's been renegotiated and the other 30% coming up next year, should we expect a continued gross to net improvement on an annual basis going forward? And then, a similar renegotiation opportunities available for BELBUCA?

Yes. So Serge, great question. The way I would think about it, and I don't want to get ahead of ourselves, our commitment is managing Xtampza ER gross to net to less than 65%, on a forever basis. Now with the renegotiation opportunity, that would certainly have a margin benefit. But we also with the headroom we have, we'll be looking to secure opportunistically at new additional payer wins, which we think would serve as a catalyst of growth. And most important, as a company committed as the leader in responsible pain management, we always want to try to improve the access to Xtampza ER for physicians, their staff and most of all to the patients. And I'll let Scott, comment on BELBUCA.

Yes. Thanks, Serge. So, yes, when we look at BELBUCA and the rest of the portfolio the fact of the matter is, first, to reiterate what you said, our goal is always to have as broad of access as we can for our full portfolio. We want patients to have access to our products. Right now, when we look at where we are in this negotiating season, the gross tenet for BELBUCA are very reasonable similar to Nucynta. And so we always are looking at things come up, to do what we call pruning whether that may be reducing a discount rate while maintaining access or in situations where it's a bad contract will walk away. And any additional things, I have nothing to report on right now, but that will all be contemplated and reflected in the guidance that we gave in January.

Great. And then, just one last one. Any update on the ELYXYB launch in migraine. It's been a couple of quarters now. It's a first foray into CNS. Just, if you can give us color on how that's going.

Yes. So, Serge, great question. The first thing I would emphasize is, when we did the BDSI acquisition we were clear that the driver of the acquisition was one, the associated synergies because of the direct overlap of the two core businesses. Number two, the opportunity, to add a differentiated growth driver in BELBUCA to the portfolio. And then the ELYXYB launch was underway and we've said, we're going to synthesize learnings through the course of the year and make a decision, on how it is we'll handle the asset moving forward. So we're synthesizing those learnings and expect to be making some decisions very soon on how it is that we're going to handle it. But when you think about Collegium, on a going-forward basis it's really maximizing the potential of our pain portfolio and building the company through acquisition of commercial stage assets, with all of the parameters that we've outlined.

Thank you.

Our next question comes from the line of Greg Fraser with Truist Securities. Please proceed with your question.

Great. Thanks for taking the questions and congrats on the progress. I'm curious, if you have a sense for where the gross net could reach in 2023, I understand mix will play an important role it might be hard to predict. But I'm curious, if you can talk about anything beyond the target of less than 65.

Sure. Greg, appreciate the question. For now what I would say is, we can confirm it will be less than 65%. We'll be issuing our guidance in early January, which will certainly frame the acceleration and Xtampza ER revenue. And at that time, we'll also give some perspective on how to think about Xtampza ER gross to net.

Got it. That's helpful. On BELBUCA and the things that you can control, when do you think those start to yield results? Are we weeks away from reinvigorated share growth quarters away? I'm curious, how you're thinking about that.

Sure. So great question. I'm going to start on that because I think Scott, gave a very good answer to the overall question. The one thing that I would emphasize, that I think is really important to understand was a learning for us. And in particular, the people in our commercial organization is just how different BELBUCA is in terms of, one physicians' awareness of the product; two, the complexity associated with education around BELBUCA and the navigation both at the pharmacy and payer level in terms of, to get the prescription adjudicated and filled. So that's a long way of saying, I believe we're on the verge of hitting our stride. And when we do I believe we'll be in a position, where we will see growth in volume and market share. And that's been a process of learning, reeducation focusing in on education and it's a little bit of a different dynamic than Xtampza because as you know, the buprenorphine market is in fact growing, which really should benefit BELBUCA because it's so differentiated for a multitude of reasons one of which is, the dosing range relative to Butrans patch. So we think there's really good opportunity to get BELBUCA, growing from a volume and share perspective moving forward. That one, more so than Xtampza, is about execution along with just hitting our stride in being as good as we can be, in the promotion of the product.

Got it. And then I just wanted to follow up on your comments on assets, that could be of interest. I'm curious on areas beyond pain and neurology. What other areas might make sense? Thank you.

Yes. Great, question. I'm not going to get into calling out therapeutic areas, but rather reinforce what it is that we're looking to accomplish. So, one, we're looking for commercial stage assets that are meaningfully differentiated. So we don't want commoditized or me-too assets. We think that's aligned to the mission of the company and critical from a reimbursement perspective. We're looking for assets that have peak sales potential of over $150 million and we want exclusivity into the 2030s, and when we assess the current market conditions, contrasting our financially strong position to the current marketplace, we think it's conducive to getting a transaction done and we want to remain opportunistic and flexible.

Great. Thanks for taking the question.

Great. Thanks Greg.

And our last final question comes from the line of Oren Livnat with H.C. Wainwright. Please proceed with your question.

Hi, thanks. I have a few. Clearly you're not going to give us any more color on what less than 65% means, I guess until you give some guidance. So that will be highly anticipated. I guess, just as we think about how you even look at and approach that guidance in terms of conservatism. Since -- I guess you won't really know the mix of product until you get into the year and then even later get the, I guess, the rebates coming back your way. How do you approach that guidance? Do you have just a volume bogey you have in mind? And then just say hey to start let's go at 65% or 64.9% so to speak, and then we'll work through the year and see how it goes. Or is there some other approach? And I have a couple of follow-ups. Thanks.

Sure. Thanks for the question Oren. I'll hand that one off to Colleen.

Hi, Oren, thanks for the question. I think [indiscernible] how we'll approach guidance we'll be -- we'll have robust thoughtful guidance that we set out through the year. As far as the forecasting in and out dynamics for Xtampza as you would in any given year, we have our forecasting model. And for payer shifts there are all sorts of analogs that will leverage to come up with what will be real estimates for the year and that will be incorporated into our planning and guidance.

Okay. And one thing you mentioned that was pretty interesting I don't think anyone asked about is this notion of growing market share within I guess established exclusive contracts. I think you worded it as improving control or increasing control on those formularies. How much share do you already have in mature exclusive contracts now? And what is going on with those straggler OxyContin patients? So what could change going forward that hasn't already changed to date?

Okay. Thanks Oren. I'll pass that one off to Scott.

Yeah. Thanks Oren. So when you think about it as we through the years talked about the exclusives in the ramp, we feel good that we can achieve market shares above 65%. So what's behind my commentary is with all of the plans, they have step-wise approaches as the years go on. So with the exclusives that had been in place for a year or two, now we turn the year there's an opportunity to work with to literally just control right where they identify OxyContin patients and they move them over to Xtampza. So that's what we're referring to when we talk about that. And in general, we can see getting to market shares in above 65%.

Okay. And can you talk about the weighted average of your total share now across the exclusive contracts?

Yeah. Oren so this is Joe. I'll take that one. So there is a range of share within exclusive contracts that we're not going to get into the specifics. What I would say to you is there is a significant opportunity in every one of the exclusive plans to grow volume and market share, the size of which is also dependent upon their season and the in and out and movement of patients to the various plans. So what we feel really good about is we've maintained the exclusive positions on the biggest Medicare Part D plans that have the highest controls in which there's a significant opportunity to continue to grow, which we believe will offset any potential pressure where we were moved to a non-formulary parity position with OxyContin in that 10%, which is lower control.

Okay. And just on the gross to net, I wasn't sure if you quantified the impact from that one-time revenue gain. What would have gross to nets been on Xtampza ER without that positive adjustment in this quarter, or I guess another way to look at it is what is the gross to net on that -- recognized on that piece that was added?

Great question Oren, and I didn't specifically state this yet. So the gross to net for Xtampza ER for the quarter absent the returns adjustment would have been 73%.

Thank you. And just -- sorry, one last thing. My connection was fuzzy when you gave the individual product sales results for this quarter. Do you mind just running through those three or four numbers real quickly? I apologize.

Sure. So for the third quarter of 2022, so total is $127 million and $38.8 million for Belbuca, $38.8 million for Xtampza, Nucynta franchise $44.4 million, SYMPROIC $3.6 million, Elixa [ph] and other $1.4 million total.

Thank you so much. And I look forward to your guidance.

Right. Thank you Oren.

Thanks Oren.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Joe for closing remarks.

Great. Thank you and thank you everyone for joining the call today. I look forward to updating you on our progress. Have a great evening.

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