01. Collegium Pharmaceutical, Inc. (NASDAQ:COLL)
Price Reaction after the Upgrade: +1.83(+5.84%)
On June 7, Collegium Pharmaceutical, Inc. (NASDAQ:COLL) was upgraded from a “Hold” to a “Buy” rating by Jefferies Financial Group, with a new price target set at $44, up from the previous $41. This upgrade is influenced by several positive factors including the company’s strong financial performance, undervaluation, and promising growth prospects. Jefferies highlighted that Collegium Pharmaceutical, Inc. (NASDAQ:COLL) is trading at about four times its EBITDA, suggesting it is undervalued especially after recent CEO changes. The firm also noted strong second-quarter trends and believes market consensus on EBITDA is too low. They see potential upside from loss of exclusivity (LOE) events and expect substantial cash generation through 2028, potentially exceeding the company’s market cap by then. Additionally, Collegium Pharmaceutical, Inc. (NASDAQ:COLL) recent $35 million accelerated share repurchase is part of a larger $150 million program, indicating strong financial health and commitment to returning value to shareholders. The company’s products, including Belbuca® and Xtampza® ER, have shown growth in prescription numbers, further supporting the positive outlook. Overall, Jefferies’ upgrade reflects confidence in Collegium Pharmaceutical, Inc. (NASDAQ:COLL) future growth and financial stability.
Third Avenue Management Small-Cap Value Fund stated the following regarding Collegium Pharmaceutical, Inc. (NASDAQ:COLL) in its fourth quarter 2023 investor letter:
“Collegium Pharmaceutical, Inc. (NASDAQ:COLL) was added to the portfolio this past quarter, and the thesis is outlined below.
COLL is an abuse-deterrent opioid company. Since entering its commercialization phase in 2019, the company has benefitted by offering a competitive product to OxyContin. COLL’s lead drug (Xtampza) does not have a black box warning from the F.D.A. for pain management, which illustrates its lower abuse potential in this critical patient segment. COLL is a company we have been following for years since it announced the acquisition of its #2 competitor, BioDelivery Sciences in 2021. During that time, we have built conviction on the durability and continued growth of COLL’s future cash flows. COLL’s valuation has remained depressed, along with the broader healthcare sector. This presented a compelling entry point now that COLL has secured significantly higher margin, multi-year payer contracts because of its responsible pain management (as payers move away from Oxycontin). These contract renewals should help COLL build scale and margins and provide a well-defined path to improve its balance sheet.
The Fund initiated the investment when COLL was trading for a mere 3.2x free cash flow3, or 5.25x trailing enterprise value to trailing EBITDA4. In addition to a low absolute valuation, this investment appears to be misunderstood by investors focused purely on earnings who have not taken the time to sift through one-time items (such as settlement agreements and costs related to the extinguishment of debt) that understate the strength of its operating performance. The company has now completed a majority of its multi-year payer contracts at significantly higher margins to COLL. To underscore this development and what the market is missing, if COLL were to run its business as-is and retire its debt, we estimate it could have a $1 billion net cash position by 2027. Furthermore, if their largest potential competitor (Teva Pharmaceuticals) stays out of the market, it could produce another $1 billion of free cash flow over the next three years. The current market capitalization is roughly $1 billion…” (Click here to read the full text)
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