SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Collegium Pharmaceutical, Inc., a Virginia corporation, as well as the accounts of Collegium Securities Corp., a Massachusetts corporation, incorporated in December 2015, a wholly-owned subsidiary requiring consolidation. The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to fairly present the financial position as of September 30, 2017, the results of operations for three and nine months ended September 30, 2017 and 2016, and cash flows for the nine months ended September 30, 2017 and 2016. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year. 

When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to revenue recognition, including the estimates of product returns, units prescribed, discounts and allowances related to commercial sales of Xtampza, estimates utilized in the valuation of inventory, estimates of useful lives with respect to intangible assets, accounting for stock-based compensation, contingencies, intangible assets, tax valuation reserves and accrued expenses. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis. The Company’s actual results may differ from these estimates under different assumptions or conditions. The consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report.

Revenue Recognition

Revenue Recognition

Revenue for product sales is recognized when there is persuasive evidence of an arrangement, title and risk of loss have passed to the customer, which generally occurs upon delivery, and when estimated provisions for chargebacks, rebates, sales incentives and allowances, distribution service fees, and returns are reasonably determinable, and when collectability is reasonably assured.  Product sales are recorded net of estimated chargebacks, rebates, sales incentives and allowances, distribution service fees, as well as estimated product returns.

Beginning in the third quarter of 2017, the Company has determined that it has sufficient experience with sales of Xtampza to estimate its returns at time of shipment. The Company sells its products primarily to distributors and retailers (“customers”), which in turn sell the product to pharmacies for the treatment of patients. The Company provides the right of return to its customers for a limited time before and after its expiration date. As a result of its experience to date with Xtampza sales, the Company determined that it can reasonably estimate the amount of future product returns. The effect on income from operations and on net income is that the Company is able to recognize revenue earlier on the sell-in method, net of a provision for estimated returns, because the Company can record revenue once sold to the customer rather than waiting until the product is sold to the end user on a sell-through method.  The Company recorded a one-time $4,377 increase to revenues during the three months ended September 30, 2017 as a result of the Company’s change to the sell-in method in the third quarter of 2017.    

Subsequent Events

Subsequent Events

The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of issuance of these financial statements. 

Advertising and Product Promotion Costs

Advertising and Product Promotion Costs

Advertising and product promotion costs are included in selling, general and administrative expenses and were $2,489 and $3,486 in the three months ended September 30, 2017 and 2016 respectively.  Advertising and product promotion costs were $8,916 and $10,492 in the nine months ended September 30, 2017 and 2016 respectively.  Advertising and product promotion costs are expensed as incurred.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

New accounting pronouncements are issued periodically by the Financial Accounting Standards Board (“FASB”) and are adopted by the Company as of the specified effective dates.

In May 2014, the FASB, issued Accounting Standards Update, or ASU, 2014-09 (ASC 606), Revenue from Contracts with Customers, which affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which defers the effective date of ASU 2014-09 for all entities by one year. ASU 2014-09, which has been codified with the Accounting Standards Codification as Topic 606, is now effective for public companies for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. ASC 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In addition, ASC 606 provides guidance on accounting for certain revenue-related costs including, but not limited to, when to capitalize costs associated with obtaining and fulfilling a contract. ASC 606 provides companies with two implementation methods. Companies can choose to apply the standard retrospectively to each prior reporting period presented (full retrospective application) or retrospectively with the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application (modified retrospective application). Since ASU 2014-09 was issued, several additional ASUs have been issued and incorporated within ASC 606 to clarify various elements of the guidance. The Company will adopt the standard in the first quarter of 2018 using the modified retrospective method. The new standard differs from the current accounting standard in many respects, including the accounting for variable consideration. Under the Company’s current accounting policy, the Company recognizes product revenues and cost of product revenues at time of delivery to customers. The Company is still evaluating its contracts with customers and assessing the potential impacts of the new standard on existing arrangements. However, the Company does not expect the implementation of this guidance will have a material impact on its consolidated financial statements as the timing of revenue recognition for product sales is not expected to change significantly.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 most significantly impacts lessee accounting and disclosures. First, this guidance requires lessees to identify arrangements that should be accounted for as leases. Under ASU 2016-02, for lease arrangements exceeding a 12-month term, a right-of-use asset and lease obligation is recorded by the lessee for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities. The Company has not chosen early adoption for this ASU and is currently evaluating its effect on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, and in November 2016, the FASB issued ASU 2016-18, Restricted Cash. The amendments in these updates are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company will adopt these standards in the first quarter of 2018 using the retrospective transition method as required with respect to each period presented.  The Company expects the adoption of these standards will result in an increase in net cash provided by investing activities of $16 for the year ended December 31, 2015.  The Company does not expect the adoption of these standards to have a material impact on its consolidated financial statements for the years ended December 31, 2016 or December 31, 2017