COLL Games The Value Investor

Collegium: Soft Reaction To Softer Growth – Collegium Pharmaceutical (NASDAQ:COLL)


Collegium Pharmaceutical (COLL) continues to carry a dominant place in my portfolio because the potential of Xtampza appeals to me, probably enjoying a key position in tackling the opioid disaster. The gradual rise of Xtampza gross sales and modest valuation is what attracted me to the inventory, though some fascinating dynamics have been added to the expansion story final yr. With this I discuss with the deal made with Depomed (NASDAQ:DEPO).

The curiosity within the firm and inventory continues as I noticed and nonetheless see a street map to interrupt-even outcomes by the top of the yr or early 2019, making that I stay very and constructive on the inventory.

All About Xtampza

Collegium obtained FDA approval for Xtampza again in April of 2016, and it has a window now lengthened to 2036 to commercialise the ache prescription treatment. The distinctive traits of Xtampza is the discharge mechanism of the ache medicine, making that it can’t be “manipulated,” no less than that’s the declare of the corporate.

Ache treatment is both brief or prolonged launch mechanism, each having advantages and disadvantages. Brief-time period launch mechanism requires frequent administration (day by day, or much more frequent) which signifies that customers should carry them round always. Prolonged launch tackles this disadvantage however makes that the upper dose must be launched over time, which usually works superb. The issue is that some customers can manipulate the discharge mechanism to get a higher dosage directly, leading to habit issues.

This habit drawback has gotten out of hand within the opioid disaster, with market-main drug OxyContin being an typically named explanation for the disaster, as this drug makes up a 3rd of the $6 billion prolonged launch mechanism market. The declare of Collegium and Xtampza is that it gives the advantages of prolonged launch, however the launch mechanism can’t be manipulated (the identical method).

Xtampza, Regular Decide-Up

Following approval in April of 2016 and begin of the commercialisation two months later, gross sales of Xtampza got here in at simply $1.7 million in 2016. Normalised gross sales rose additional to greater than $24 million final yr, displaying good sequential enhancements, but the general income quantity stays comparatively modest, though the exit price already got here in at $43 million.

Key for the corporate was the FDA choice in November final yr during which the label of Xtampza is enhanced, making that Collegium can actively promote the qualities (anti-abuse) of the drug. That is already seen within the first quarter outcomes as gross sales rose by $5 million on a sequential foundation to $15.eight million. In that mild, the second quarter gross sales variety of $18.1 million seems a bit delicate, for only a $2.three million improve on a sequential foundation. The softness was mentioned on the decision, however no elementary causes have been attributed to this slower progress quantity, particularly in the direction of the top of the quarter.

The Aspect Guess

I advised you that Collegium is all about Xtampza, and that second quarter gross sales got here in a contact mild in my eyes. The corporate made one other deal in December of final yr, as it’s going to commercialise Nucynta tablets within the US following an settlement with Depomed. Advertising Xtampza and Nucynta (speedy + prolonged launch ache mechanism) ought to end in actual gross sales synergies.

The rationale why this all is so necessary is that the corporate took large monetary obligations in reference to the deal. The $10 million upfront charge is modest, but the minimal annual payment of $135 million a yr (in a 4-yr settlement) in addition to royalties is a slightly sizeable dedication at greater than half billion.

Gross sales of Nucynta hit $47.9 million within the first quarter of 2018 and rose to $ million within the second quarter amidst a flattish prescription rely. Complete revenues for the second quarter thus got here in at $73.1 million, marking a close to $10 million enchancment on a sequential foundation, as the corporate is nearer to breaking even. Working losses have been primarily reduce in half from $13 million to $7 million, though the quarterly curiosity invoice of $6 million nonetheless weighs on the underside on-line.

On the brilliant aspect, money holdings stand at $134 million because the asset acquisition legal responsibility is mechanically being amortised, presently standing at $430 million. This amortisation cost already “passes” the traditional revenue and loss assertion. A comforting thought, administration believes that it ought to finish the yr with an analogous money stability or extra, projecting minimal money balances of $135 million by yr’s finish.

Expectations Come Down

The promise of Xtampza, that of maybe enjoying a key position in fixing the opioid disaster made that shares rose from single digits early 2017 to a excessive of $30 in March, as shares almost examined that degree once more in early June. Ever since, shares have misplaced about 40% of their worth once more, buying and selling at $17 and alter.

With little over 33 million shares excellent, the market worth of the agency now quantities to $560 million, for non-demanding gross sales multiples. That stated, the R&D finances of simply $2.2 million 1 / 4, makes that one shouldn’t anticipate new approvals anytime quickly, as now’s the time to start out earning money by aggressively advertising the 2 medicine.

Considerations of the market relate partially to a relatively sudden CEO transition with former COO Joseph Ciaffoni being promoted to the highest job, after founding CEO Michael Heffernan stepped down in June, however will stay Chairman.

Comported By The (Money Steerage)

Whereas progress charges is perhaps a bit softer than maybe anticipated, I really feel comforted by the steerage that money balances ought to stay the place they’re by yr’s finish, with out working capital or large fairness issuance tips. This means that additional sequential enhancements in gross sales are seen, actually permitting for break-even outcomes, as Xtampza will moreover profit from contract wins including to gross sales in each this fall and early 2019.

Therefore, I’m grateful to benefit from present ranges so as to add to my place, in what stays an extended-time period fascinating secular play with enhancing break-even fundamentals and really modest gross sales multiples. Whereas that is definitely an above-common dangerous funding, the potential returns is perhaps very interesting as nicely, making me a affected person holder of the inventory.

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Disclosure: I’m/we’re lengthy COLL.

I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from Looking for Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.

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