Collegium Pharmaceutical: Oversold And Cheap (NASDAQ:COLL)

Elderly woman"s hands handling drugs ready to be taken.

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“To travel is to be alive, but to get somewhere is to be dead.“― Alan Wilson Watts

Today, we look at a small cap biopharma that appears oversold and also made a solid strategic acquisition. A full analysis and recommendation follow below.

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Company Overview

Collegium Pharmaceutical, Inc. (NASDAQ:COLL) is a Canton, Massachusetts based commercial-stage specialty drug concern focused on the development and marketing of therapies for pain management. With its March 2022 acquisition of BioDelivery Sciences International, the company now has five commercial products, including one neurology (acute migraine) asset and one anti-constipation remedy. Collegium was formed in 2002, pivoted to its current pain management concentration in 2010, and went public in 2015, raising net proceeds of $72.0 million at $12 per share. Its stock trades just over $16.00 a share, translating to a market cap of $560 million.

Company Overview

May Company Presentation

Commercial Products

Xtampza ER. The company’s only FDA-approved therapy that it didn’t acquire is Xtampza ER, which is extended-release oxycodone for the management of pain severe enough to require around-the-clock, long-term opioid treatment for which alternatives are inadequate. This product leverages Collegium’s abuse-deterrent technology dubbed DETERx. The platform combines active ingredients (in this case oxycodone) with fatty acid and waxes to form microsphere beads that are resistant to physical or chemical manipulation, promoting ER. As such, Xtampza ER capsule has received oral, intranasal, and intravenous abuse-deterrent labeling. It was approved and launched in 2016 and generated FY21 net sales of $103.7 million, representing a ~34% share of the oxycodone ER market. It is patent-protected until September 2033.

Nucynta. Prior to its purchase of BioDelivery, Collegium’s only other commercial assets were its Nucynta ER and Nucynta IR (immediate-release) products, which are different formulations of the opioid pain therapy tapentadol. The prior is approved for the same indication as Xtampza ER, while the latter is approved for acute pain severe enough to require an opioid analgesic and for which alternatives are inadequate. Furthermore, Nucynta ER is the only ER drug indicated for pain associated with diabetic peripheral neuropathy. The company initially marketed Nucynta products on behalf of Assertio Holdings (ASRT), but then acquired the assets for a total consideration of $375 million in February 2020. Nucynta products generated FY21 net revenue of $173.2 million, but their exclusivity ends in July 2025.

Belbuca. In March 2022, Collegium bolstered its pain management portfolio through its purchase of BioDelivery, whose primary revenue generator is buccal film Belbuca. The Schedule III opioid, formerly a competitor and now compliment in the company’s portfolio, represents a second growing pain med alongside Xtampza ER. It generated FY21 net revenue of $148.2 million, but its exclusivity ends in January 2027.

Purchase Rationale

May Company Presentation

Together, Belbuca, Xtampza ER, and Nucynta ER have approximately 50% share of the branded opioid ER market.

Symproic. Opioid-induced constipation [OIC] is a frequent side effect of long-term opioid use, afflicting 40-80% of patients. For this outcome, BioDelivery markets Symproic, which was in-licensed for the U.S. market from Shionogi (OTCPK:SGIOF) in 2019. This therapy generated FY21 net revenue of $16.4 million.

Elyxyb. Also part of the BioDelivery deal is acute migraine remedy Elyxyb (celecoxib), an oral Cox-2 NSAID that was approved in 2020 and launched in February 2022. It carries a boxed warning for serious risk of cardiovascular and gastrointestinal [GI] events. With that said, BioDelivery believes its therapy causes fewer GI issues than the other FDA-approved acute migraine NSAID: Assertio’s Cambia (diclofenac potassium). It enjoys patent protection through 2036. The domestic opportunity is significant with the acute migraine market reaching $2.8 billion in 2021, with over 18.1 million prescriptions written, up 8% from 2020. With that said, the company will implement a targeted approach for Elyxyb’s launch, and use learnings to instruct next steps, while it looks to onboard other neurology assets.

BioDelivery Acquisition

Beyond the three therapies, Collegium received a sales effort consisting of 147 sales reps, 17 regional managers, and three area directors from BioDelivery as part of the $604 million all-cash transaction. Unquestionably, many of these employees will be let go as the company right sizes the combined commercial operations, which Collegium expects to result in cost synergies amounting to a run rate of $75 million twelve months post-close.

1Q22 Results & Outlook

In addition to the BioDelivery acquisition, Collegium executed a settlement covering all 27 opioid-related lawsuits against it at a cost of $2.75 million in March 2022, making it a busy month for the company.

On May 10, 2022, with eight days of BioDelivery sales in its results, Collegium reported non-GAAP 1Q22 EPS of $0.60 and Adj. EBITDA of $43.5 million on revenue of $83.8 million versus earnings of $0.55 a share (non-GAAP) and Adj. EBTIDA of $45.3 million on revenue of $87.7 million in 1Q21. These numbers were slightly better than Street expectations but it is unlikely that the consensus included BioDelivery’s contribution.

More importantly, Belbuca and Xtampza ER registered year-over-year prescription growth and market share gains in the stanza. Belbuca scripts were up 4% while its share of the branded ER market increased two points to 17.4%. Xtampza ER prescriptions were up 3% and its share of the oxycodone ER market grew 3.6 percentage points to 34.2%. Furthermore, Nucynta ER maintained a 5.6% share of the branded ER market while Symproic scripts grew 14% year-over-year.

With BioDelivery under its roof, management reiterated a FY22 forecast – first announced in early April 2022 – that included Adj. EBITDA of $242.5 million on revenue of $457.5 million, based on range midpoints.

The market, in the throes of a major selloff, took the news in stride with shares of COLL down $0.02 to $14.46 in the subsequent (May 11th, 2022) trading session.

Balance Sheet & Analyst Commentary

To acquire BioDelivery, Collegium onboarded additional debt of $650 million, bringing its total to $768.6 million against cash of $106.7 million for net leverage of 6.7. However, that metric should drop below 3.0 by YE22 (assuming no more purchases) as EBITDA is expected to more than double in FY22. The company has $52.1 million remaining on a share repurchase program, but it appears that its capital allocation priority – despite its depressed share price – is to find an neurology asset to complement Elyxyb.

Balance Sheet

May Company Presentation

In the subpopulation of Street analysts offering commentary during 2022 – no comments were made during 2021 – sentiment is bullish with two buy and two outperform ratings and a median twelve-month price objective of $32.50. Overall, expectations are for Collegium to earn $5.30 a share (non-GAAP) on revenue of $448.7 million in FY22, followed by $7.10 per share (non-GAAP) on revenue of $542.0 million in FY23, representing 34% and 21% gains, respectively.

Verdict

Collegium has a significant debt overhang and two of its three best selling assets are facing patent cliffs in the next three to five years and has no clinical pipeline. Furthermore, opioids are not exactly popular with the public or investors. With that said, it is trading at a rather eye-popping three times FY22E EPS and 2.2x FY23E EPS, meaning the company is on track to earn approximately double its market cap from 2022-2025. On that metric alone, its stock is a buy. Looked at another way, the company could pay down its debt and buy all of its stock back in four to five years. Major market selloffs create pricing dislocations. Collegium is representative of that maxim.

“Memory is each man’s own last measure, and for some, the only achievement.”― William Least Heat-Moon

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