Welcome to Collegium Pharmaceutical's Second Quarter 2022 Earnings Conference Call. This is Alex Dasalla, Head of Investor Relations for Collegium.

I am joined today by Joe Ciaffoni, our Chief Executive Officer; Colleen Tupper, our Chief Financial Officer; and Scott Dreyer, our Chief Commercial Officer. Before we begin today's call, we 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 made 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, that we may not be able to successfully renegotiate our contracts related to Xtampza ER prescriptions on desired terms, that we may not be able to successfully commercialize our products and that we may incur significant expense and may not prevail in current or future patent infringement litigation or other litigation pertaining to our products. 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, Alex. Good afternoon, and thank you, everyone, for joining the call.

Today, we will discuss our performance during Q2 and the first half of 2022 and provide some perspective on our outlook for the remainder of the year. At Collegium, we remain focused on our mission to build a leading diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions.

During the second quarter, Collegium continued to support the communities where we live and work through our partnership with Science from Scientists, a nonprofit whose mission is to improve STEM literacy. Collegium's $100,000 donation to Science from Scientists will fund multiple STEM programs in disadvantaged communities for the upcoming school year.

We are dedicated to delivering on our mission, growing our business and creating value for our shareholders. We will do this by maximizing the potential of our differentiated portfolio, achieving our near-term operational and financial goals and strategically investing in our long-term growth.

I want to recognize my colleagues for their hard work and dedication to our organization and thank them for their commitment to people living with serious medical conditions. 2022 is a pivotal year for Collegium.

In the first half of the year, our accomplishments were significant, and we are on track to achieve our 2022 priorities. We acquired BDSI, a financially transformative deal that establishes Collegium as the leader in responsible pain management.

Following the close of the acquisition, we achieved day 1 commercial readiness, seamlessly integrated operations and are on track to exceed targeted run rate synergies of at least $75 million. We delivered record net revenue in the second quarter.

We grew prescription volume with our growth drivers, Belbuca and Xtampza ER versus the first half of 2021. We achieved record revenue with Belbuca in Q2, our first full quarter of promotion.

We renegotiated Xtampza ER contracts that represent approximately 50% of all prescriptions. We are now awaiting final plan decisions and remain absolutely committed to achieving gross to net of less than 65% beginning in January 2023.

And we executed a master settlement agreement resolving all 27 pending opioid industry-related lawsuits brought against the company by cities, counties and other subdivisions in the United States. We remain laser-focused on executing our 3-phase action agenda.

Phase I, Seamless Integration, was a significant undertaking and was successfully completed. As a result, we are on track to exceed targeted run rate synergies of at least $75 million and are moving forward with a synergized cost structure that gives us confidence to raise our 2022 adjusted EBITDA guidance.

In July, we transitioned to Phase II, Generate Momentum. Achieving day 1 commercial readiness, coupled with a successful in-person national sales meeting in late May, means we now have a fully trained and engaged commercial organization focused on execution.

We are well positioned to grow Belbuca and Xtampza ER prescriptions faster in the second half of the year. Xtampza ER contracts have been renegotiated, and we expect to be informed on planned decisions in the fourth quarter.

We remain absolutely committed to managing Xtampza ER gross to net to less than 65% beginning in January 2023. The Elyxyb launch is underway, and we will be synthesizing learnings for the remainder of the year.

In January 2023, we will begin Phase III, Accelerate. Our expectation is that we will see an acceleration of top and bottom line growth, propelled by improved Xtampza ER gross to net, prescription growth of Belbuca and Xtampza ER and the full year impact of the synergized cost structure.

Our singular focus in deploying capital is to create value for our shareholders. Our top priority is business development.

We are committed to taking a disciplined approach, but we believe current market conditions are conducive to potentially getting a deal done. We are actively evaluating commercial-stage opportunities, with peak sales potential of greater than $150 million.

Importantly, we are looking for assets that are differentiated and with exclusivity that runs into the 2030s. Our strong financial position allows us to allocate capital in a focused and disciplined manner.

We are committed to strategically investing in the growth of our business to create long-term value for our shareholders. I will now hand the call over to Colleen for a discussion of the financials.

Thanks, Joe. Good afternoon, everyone.

Q2 was a strong quarter for Collegium. We generated record revenue, completed a seamless operational integration, and we remain on track to exceed targeted run rate synergies of at least $75 million.

Collegium is in a strong financial position that will get stronger moving forward. Financial highlights for the second quarter include total product revenue was a record $123.5 million for the second quarter, an increase of 49% from the second quarter of 2021.

Belbuca net revenue was $42.3 million in the second quarter of 2022. This was the first full quarter of Belbuca or the part of the Collegium portfolio, and it was a record quarterly revenue for the product.

Xtampza ER net revenue was $33.2 million. Xtampza ER gross to net in Q2 was 70.9%.

For the full year, we expect gross to net to around 73% with some lumpiness from quarter to quarter. Nucynta franchise net revenue was $43.6 million in the second quarter of 2022.

Operating expenses, which includes stock-based compensation expense, were $41.3 million in the second quarter compared to $33.8 million in the second quarter of 2021. Adjusted operating expenses, which excludes stock-based compensation and acquisition-related expenses, were $32 million in the second quarter, an increase of 17% from the second quarter of 2021.

Net loss for the second quarter was $5.2 million. Income from operations was $11.1 million in the second quarter.

Non-GAAP adjusted EBITDA was a record $71.2 million for the second quarter versus $40.1 million in the second quarter of 2021. Please see our press release issued earlier today for a reconciliation of GAAP to non-GAAP results.

As of June 30, 2022, our cash balance was $122.7 million. During the quarter, Collegium paid off $25 million in debt.

We expect to end the year with at least $150 million in cash and estimate that our net leverage will be below 3x by the end of this year. In Q2, we posted record revenue and delivered solid operational performance.

We are on track to exceed annual synergy targets for the BDSI acquisition, and we expect to grow revenue at greater than 2x the rate of adjusted OpEx. Collegium is in a strong financial position that will get even stronger moving forward.

Moving to our 2022 financial guidance. For 2022, we continue to expect total product revenues in the range of $450 million to $465 million.

Driven by greater-than-anticipated synergies from the BDSI integration, we are updating adjusted operating expenses and adjusted EBITDA guidance. We now expect our adjusted operating expenses in the range of $125 million to $135 million.

We are increasing our adjusted EBITDA guidance and now expect total adjusted EBITDA in the range of $245 million to $255 million. We remain focused on creating value for our shareholders through focused and disciplined business development.

BD remains our top priority for capital deployment, and we have significant flexibility to finance additional transactions near term. We will rapidly deleverage the balance sheet, paying down $100 million in debt by March 2023 and fully paying our Pharmakon term loan by March 2026.

We also have the option to opportunistically return capital to shareholders, with more than $50 million remaining on the $100 million share repurchase program authorized by the Board last year. 2022 is a pivotal year for Collegium.

Our business is in a solid financial position. We are in a phase of growth and value creation and are focused on finishing 2022 strong.

I will now turn it over to Scott.

Thanks, Colleen. In the first half of the year, we made meaningful progress against our key commercial priorities, and we're now 100% focused on Phase II of our action plan, Generate Momentum, driven by Belbuca and Xtampza ER prescription growth and the finalization of our renegotiated Xtampza ER contracts that will allow us to bring Xtampza ER gross to net to less than 65% in January of 2023.

Collegium remains firmly established as the leader in responsible pain management. Our pain portfolio comprised of Belbuca, Xtampza ER, Nucynta ER and Nucynta IR spans the continuum of care from acute to chronic pain and includes both Schedule III and II products.

All 4 products are highly differentiated and viewed favorably by health care providers. Each product is distinctly positioned and sources differently.

All of our pain products have broad market access coverage. During the first half of the year, we grew volume and market share for both Belbuca and Xtampza ER and maintained market share for Nucynta ER.

We grew the market share of our extended-release pain portfolio to 49% of the branded ER market. Belbuca and Xtampza ER are positioned for growth.

Both products have large and growing prescriber bases, and Collegium is now the only company with active promotion in this space. During the second quarter, Belbuca's broad prescriber base grew approximately 7% to 9,200 prescribers.

And Xtampza's subscriber base was up 1% to 19,200 prescribers. The Nucynta franchise was a strong contributor in the second quarter, with stable market share and a broad and stable prescriber base of 13,300 health care professionals.

During the quarter, we successfully completed Phase I of our 3-phase action agenda, achieving day 1 commercial readiness. In May, we conducted a national sales meeting, which enabled us to bring the team together, to reinforce the strategy and messaging for our differentiated and distinctly positioned product portfolio, to launch new promotional resources for Belbuca and Xtampza ER and to focus on execution.

We're in the early days of the Elyxyb launch and are now fully operational. We're taking a focused and phased approach, and where we choose to play, we'll play to win.

We'll be assessing receptivity and uptake throughout 2022. For the remainder of the year, we're focused on growing Belbuca and Xtampza ER.

We've launched new marketing materials for our sales representatives and new nonpersonal promotion content and channels. Our pain sales force is fully trained, focused on execution of our plan, and we expect to drive Belbuca and Xtampza ER prescription growth.

Our contract renegotiations for Xtampza ER across contracts representing approximately 50% of Xtampza ER prescriptions are complete. We're now awaiting final decisions from plans, which we expect to occur in the fourth quarter.

We're absolutely committed to managing gross to net for less than 65% beginning in January of 2023. I'm confident that the actions that we're taking will generate momentum in Phase II of our action agenda and position us to accelerate in Phase III.

I'll now turn the call back to Joe.

Thanks, Scott. I will now open the call up for questions.

This is Isaac on for David. Just a couple from us.

So I know you guys touched on this briefly with regards to renegotiating contracts for Xtampza, but any color on this front would be super helpful and appreciated. And then what gives you confidence that you'll be able to get the gross to net down to 65% by next year?

And then I've got a few follow-ups.

Okay. Isaac, this is Joe.

I'm going to pass those 2 questions off to Scott.

Thanks, Isaac. Yes, so I appreciate the question.

At this point, not much more color that I can give other than our negotiations are complete. We're confident in those conversations and what we accomplished during those conversations, and the fourth quarter will be informed of the choices that the plans make.

And we will be giving some type of an update on the November call. Thanks.

Okay. Great.

And then more on BD and M&A. I know you guys touched on this briefly, too, but I mean it's clear that asset prices have come down and you guys are -- you could be pretty flexible.

You have -- I mean your balance sheet is pretty flexible on this front. So can you walk us through your latest thinking on that and your preference with regards to taking on a commercial-stage asset or a development-stage asset and the IP runway there?

And then the last question we've got is -- it's just on Elyxyb. I mean it looks like sales were pretty minimal in the second quarter.

I know you guys have talked about this being a phased launch. But any metrics you can provide here?

And does the early performance for the product impact your thinking with regards to M&A and neurology as a means of diversifying the business?

Okay. Isaac, this is Joe.

Thanks for the question. I'll start off with a broader perspective on BD, hand it off to Colleen to talk a little bit about how we think of our capacity.

And then Scott will follow up on the Elyxyb question. So the first thing that I would emphasize as we think about where we're at, one, we're through essentially all the activities associated with the BDSI integration, which is important.

So we're in a position where we're ready if an opportunity presents itself to take it on. As I said in my comments and as you reiterated in your question, we look at the current market dynamics as conducive to potentially getting a deal done, certainly much different than what it's been over the past couple of years.

From a strategic perspective, we're looking for commercial-stage assets with potential -- peak sales potential, in our view, of over $150 million. In terms of runway, we're looking for assets that have runway into the 2030s.

Neurology is an adjacency that we like, certainly with the launch of Elyxyb. We have a small commercial group there that could be leveraged, but we also will be opportunistic given the favorable market dynamics and the bigger focuses on assets that meet the criteria from a peak sales and runway perspective.

Thanks, Joe. Isaac, it's Colleen.

So I'd say we're in a privileged position to have the ability to continue to hunt for strategic assets but not be forced into a suboptimal deal. Given our commercial focus, deals that we are looking at would be near term, if not immediate, positive EBITDA.

And we have the ability to raise debt and are comfortable with a net debt ratio of about 2 -- sorry, 4x or below. And then we have the ability to use our equity if the market dynamics were to be supportive.

Yes. And then lastly, on the Elyxyb launch.

Look, we're just getting started, and we're glad that now we're fully operational in those 25 first-phase territories. It's too early to draw any conclusions, but what we're most excited about is we're developing a foothold in neurology.

Where we're playing, we're playing to win and are all in, and we'll continue to monitor the uptake through the rest of the year to decide what we do from there in terms of any expansion decisions. Thanks for the question.

And regarding GTN and moving it to 65%, could you directionally talk to us about volumes and kind of how that impacts the revenue? And then maybe directionally, obviously, that's going to be more profitable, but give us kind of an idea around the magnitude of that profitability.

Yes. So Tim, I'll talk a little bit about the expectation of Xtampza from a volume perspective.

The contracts we're renegotiating account for about 50% of Xtampza prescriptions. As we commented, we're very encouraged by the discussions we had with the payers.

Our objective is, first and foremost, to bring the gross to net to less than 65% while also maintaining access for Xtampza. And as we said in the prepared remarks, we expect to see Xtampza grow not only in 2022 but also in 2023.

And Colleen could talk a little bit about your question on margin.

Yes, Tim, thanks for the question. As you know, dropping down to 65% on Xtampza gross to net actually a significant drop to the bottom line.

We ended last year with a full year of 76% gross to net. And this year we're -- from a full year perspective, we're tracking on 73%.

Okay. And just to be clear, when you say Xtampza will continue to grow, that is revenue?

Or is that volume?

That's a statement, Tim, on both volume and revenue. So we expect in 2023, there to be volume growth and then the improved gross to net will be an additional propellent to revenue.

Okay. Fantastic.

And given the market dynamics for BD, you mentioned the availability of debt, but obviously, the debt markets might be a little tighter than they were a year ago. Can you just maybe give us some color around what kind of get you find attractive and just at least talking about the availability of that debt these days?

Sure. Tim, I'll ask Colleen to answer that question.

Tim, yes. Yes, we're keeping a close eye on the landscape debt, and cost of capital has increased.

But we still do believe there are advantageous ways to finance an acquisition when one presents itself that we'd like to make a move on. You could envision a term loan-type arrangement, but we're looking at all options there.

A couple for me. I guess the first one for Joe.

I think when you gave guidance at the start of the year, one of the main assumptions is there would be no improvements in the market environment in terms of the headwinds that were affecting Xtampza. Just curious if that outlook has changed for the second half of the year.

And then just looking on individual product basis, it looks like the strength of Belbuca in the second quarter kind of offset some weakness in Nucynta. Just curious if that Belbuca strength is sustainable for the second half?

Yes. Serge, I'll take the first question and hand the second one off to Scott.

And I appreciate your question. Look, from a market environment perspective, and we set our guidance for the year, we had said we were trending, not factoring in any improvement to the market dynamic.

I would say to this point in the year, that has proven to be a wise choice. The pain market continues to be off of the pre-COVID levels.

And when you think of the numbers that we're guiding to, it does not have built into it any improvement to the second half of the year from a market dynamic perspective. But we do expect to see the volume growth of both Belbuca and Xtampza to pick up in the second half of the year.

And I'll let Scott address your Belbuca question specifically.

Yes. Thanks, Serge.

So to your comments on the Nucynta and kind of Belbuca trade-off. When we look at Nucynta in the second half of the year, it performed in line with our expectations.

We're glad that we maintained market share for Nucynta ER, and yes, we saw some strength you're referring to for Belbuca from a revenue standpoint. What we're excited about there is there was a lot of transition in the second quarter, cross training as we came through the integration.

And now when you look at the second half, we're well positioned to grow Belbuca. It's got a strong market position, a strong and growing base of prescribers, thought of very highly differentiated by the prescriber base.

So coming out of our sales meeting, we're really encouraged by momentum we think we can build in the second half.

And Serge, this is Joe. The only other thing I would add is when you look historically at the Nucynta franchise, when you get past the first quarter and the reset of deductibles and things like that, you see more stable prescriptions in the second half of the year, which is what we would expect to see.

Okay. And I guess just one follow-up.

It sounds like the renegotiations of contracts are more or less complete at this point and you're waiting on individual plan decisions. Does that mean plans still have the option to opt out of these renewed contracts?

Or what else could come out of these decisions that you're awaiting?

Yes, great question, Serge. So look, where we're at, our bids are submitted.

The negotiations are done. The outcome that we're striving for is that we certainly get the rollback from a rebate perspective while maintaining access to Xtampza ER.

But in any event, the Xtampza ER gross to net will be less than 65% beginning in January of 2023. So we're very encouraged by the discussions we had during the negotiations.

We think that the bids we put forward are very reasonable given the value of Xtampza ER, and we're looking forward to being able to communicate the decisions when we get on our fourth quarter call.

Just a quick follow-up on the last question about Belbuca sales. Just curious if there are any onetime items that helped sales in the quarter?

Or should we look at sort of the relationship between sales and prescription is a good number to use going forward?

Colleen?

Greg, it's Colleen. Thanks for the question.

I wouldn't say necessarily a onetime event, but we did harmonize some of the co-pay programs across the business, and Belbuca definitely had a benefit from that, with a few changes we made to harmonize that co-pay program consistent with Collegium. So we're expecting Belbuca gross to net to stay in the low to mid-50s percent, and you see some of that favorability impacting the second quarter.

Got it. Very helpful.

How --

Greg. I'm sorry, Greg.

One additional point of color. The benefit that Colleen is referencing is a revenue benefit.

We also believe that harmonization probably had a little bit of a pressured effect on prescriptions that we don't expect to see as we move to the second half of the year.

Got it. Okay.

How do you tweak the messaging on Belbuca relative to what BDSI has been doing?

Scott?

Yes, thanks for the message, Greg. I would say, it's not a tweak.

It's a training on the strong messaging platform that's in place. So as we harmonized the sales force, if you remember, we went through an event in the fourth quarter at Collegium.

We then came through integration. It really was a focus in the second quarter of thoroughly training our people on the messaging for the brand.

And then we were excited we were able to do that live at a national sales meeting. So now we have a position of a product that is clearly differentiated, a Schedule III versus Schedule II, with a broad dosing range that can provide great efficacy for patients.

And that's where we're focused going forward in the second half.

Got it. Okay.

On the Belbuca prescriber base, you've been growing it clearly. I'm curious if you think that the prescriber base for Belbuca to eventually grow to the size of the expanded Xtampza base, which is much larger.

Or is there a reason that it would not be that as broad?

Yes, I wouldn't hypothesize on getting to the size of Xtampza, which is almost 19,000 prescribers. But what's encouraging is, as you said, Belbuca is consistently growing, 7% in the last quarter at 9,200 total prescribers.

And absolutely, it's a trend that's not slowing. So I believe we'll be able to continue to grow the prescriber base.

And Greg, the only thing I would add there is our organization, we are absolutely passionate and aspire and have a strong belief that Belbuca, as a Schedule III product, should be used far more often than it is in the treatment of pain. So we will make every effort to ensure the Belbuca story is known.

And with that, there's certainly a lot of opportunity to expand that prescriber base.

Understood. Okay.

And then just a bigger picture question on the market. The market is obviously still declining and has been for many years, but the declines have moderated a bit.

When do you think the market could level off potentially in terms of prescription volume? I'm curious if you have any thoughts on that.

Sure. Thanks, Greg.

Look, our belief is that the point at which the market is certainly moderating, we expect it to continue to do so as you get to around the prescribing level of the early 2000s. And the relevant point of that is that's when pain was identified as a fifth vital sign, which was one of the drivers of increased opioid utilization.

From a Collegium perspective, we believe that opioids should be used only after other options are exhausted in appropriate patients, and certainly in those scenarios, we believe our product should have a meaningful position.

I think what's the market in terms of total prescriptions back then?

It's -- we're nearing the level in terms of total opioid prescriptions of the early 2000s. When you get to that level in our modeling, that's where we expect to see it moderate to more of a mid- to lower single-digit decline over the next 5 years.

Thank you. We are building a leading diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions.

We are laser-focused on executing our 3-phase action agenda. I am proud of our achievement in Phase I, Seamless Integration, confident that we will generate momentum in Phase II, which will position us to accelerate in Phase III beginning January 2023.

I look forward to updating you on our progress. Have a great evening.