Collegium Pharmaceutical (COLL)

Pharmaceutical company Collegium Pharmaceutical (NASDAQ:COLL) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 22.7% year on year to $177.8 million. The company expects the full year’s revenue to be around $742.5 million, close to analysts’ estimates. Its non-GAAP profit of $1.49 per share was 2.8% above analysts’ consensus estimates.

Company Overview

Pioneering abuse-deterrent technology in a field plagued by addiction concerns, Collegium Pharmaceutical (NASDAQ:COLL) develops and markets specialty medications for treating moderate to severe pain, including abuse-deterrent opioid formulations.

The branded pharmaceutical industry relies on a high-cost, high-reward business model, driven by substantial investments in research and development to create innovative, patent-protected drugs. Successful products can generate significant revenue streams over their patent life, and the larger a roster of drugs, the stronger a moat a company enjoys. However, the business model is inherently risky, with high failure rates during clinical trials, lengthy regulatory approval processes, and intense competition from generic and biosimilar manufacturers once patents expire. These challenges, combined with scrutiny over drug pricing, create a complex operating environment. Looking ahead, the industry is positioned for tailwinds from advancements in precision medicine, increasing adoption of AI to enhance drug development efficiency, and growing global demand for treatments addressing chronic and rare diseases. However, headwinds include heightened regulatory scrutiny, pricing pressures from governments and insurers, and the looming patent cliffs for key blockbuster drugs. Patent cliffs bring about competition from generics, forcing branded pharmaceutical companies back to the drawing board to find the next big thing.

Collegium Pharmaceutical's competitors include Purdue Pharma (maker of OxyContin), Teva Pharmaceutical Industries (NYSE:TEVA), Endo International (OTC:ENDPQ), and other pharmaceutical companies that manufacture pain medications, particularly those with abuse-deterrent formulations.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $664.3 million in revenue over the past 12 months, Collegium Pharmaceutical is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Collegium Pharmaceutical’s sales grew at an impressive 17.3% compounded annual growth rate over the last five years. Its growth beat the average healthcare company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Collegium Pharmaceutical’s annualized revenue growth of 12.5% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Collegium Pharmaceutical reported robust year-on-year revenue growth of 22.7%, and its $177.8 million of revenue topped Wall Street estimates by 2.9%.

Looking ahead, sell-side analysts expect revenue to grow 13.2% over the next 12 months, similar to its two-year rate. This projection is noteworthy and implies the market is forecasting success for its products and services.

Collegium Pharmaceutical has managed its cost base well over the last five years. It demonstrated solid profitability for a healthcare business, producing an average operating margin of 19.6%.

Analyzing the trend in its profitability, Collegium Pharmaceutical’s operating margin decreased by 1.1 percentage points over the last five years, but it rose by 8.4 percentage points on a two-year basis. Still, shareholders will want to see Collegium Pharmaceutical become more profitable in the future.

In Q1, Collegium Pharmaceutical generated an operating profit margin of 12.2%, down 21.9 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Collegium Pharmaceutical’s EPS grew at an astounding 46.4% compounded annual growth rate over the last five years, higher than its 17.3% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

We can take a deeper look into Collegium Pharmaceutical’s earnings to better understand the drivers of its performance. A five-year view shows that Collegium Pharmaceutical has repurchased its stock, shrinking its share count by 6.4%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q1, Collegium Pharmaceutical reported EPS at $1.49, up from $1.42 in the same quarter last year. This print beat analysts’ estimates by 2.8%. Over the next 12 months, Wall Street expects Collegium Pharmaceutical’s full-year EPS of $6.45 to grow 11.4%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Collegium Pharmaceutical has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the healthcare sector, averaging an eye-popping 36.7% over the last five years.

Taking a step back, we can see that Collegium Pharmaceutical’s margin dropped by 11.9 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Collegium Pharmaceutical hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 15.1%, impressive for a healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Collegium Pharmaceutical’s ROIC decreased by 2.5 percentage points annually over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Collegium Pharmaceutical reported $197.8 million of cash and $243.9 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $404 million of EBITDA over the last 12 months, we view Collegium Pharmaceutical’s 0.1× net-debt-to-EBITDA ratio as safe. We also see its $28.58 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Collegium Pharmaceutical beat analysts’ revenue expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. Overall, this print had some key positives. The stock remained flat at $27.27 immediately after reporting.

Updated: May 19, 2025 at 11:47 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Collegium Pharmaceutical.

Collegium Pharmaceutical isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was impressive over the last five years, it’s expected to deteriorate over the next 12 months and its subscale operations give it fewer distribution channels than its larger rivals. And while the company’s powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its cash profitability fell over the last five years.

Collegium Pharmaceutical’s P/E ratio based on the next 12 months is 4.1x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $43 on the company (compared to the current share price of $29.83).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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