Pacira BioSciences, Inc. — Q3 2023 Form 10-Q Summary
Business Context and Reporting Period
Pacira develops, manufactures and commercializes non-opioid pain-management products. Its principal products are EXPAREL, ZILRETTA and iovera®. The company reports one operating segment. This unaudited filing covers the three and nine months ended September 30, 2023, with comparisons to the same periods in 2022.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenue | $163.9 million | $167.5 million | $493.7 million | $494.9 million |
| Net product sales | $163.6 million | $166.6 million | $492.5 million | $492.6 million |
| Income from operations | $17.7 million | $21.3 million | $54.5 million | $69.9 million |
| Net income (loss) | $10.9 million | $(0.7) million | $17.1 million | $26.0 million |
| Diluted EPS | $0.23 | $(0.02) | $0.37 | $0.56 |
| Gross margin | 76% | 70% | 72% | 72% |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $107.1 million | $103.2 million |
Q3 product sales consisted of EXPAREL of $128.7 million, ZILRETTA of $28.8 million, iovera® of $5.3 million and veterinary bupivacaine liposome injectable suspension of $0.9 million. At September 30, 2023, cash and cash equivalents were $99.1 million, available-for-sale investments were $136.1 million and working capital was $353.6 million.
Total debt was $524.6 million, comprising approximately $398.0 million of 0.750% convertible notes due 2025, $8.6 million of 3.375% convertible notes due 2024 and $118.0 million of net Term Loan A debt due 2028. The Term Loan A balance bore interest at 8.47% at quarter-end. The company was in compliance with its debt covenants.
Material Changes Versus the Prior Comparable Period
- Total revenue declined 2% in Q3 and was essentially flat for the first nine months.
- EXPAREL sales declined 3% in Q3 and 1% year to date, primarily because of lower net selling prices associated with 340B enrollment and other contracting, partly offset by higher volume.
- ZILRETTA sales increased 9% in Q3 and 6% year to date; iovera® sales increased 18% and 28%, respectively.
- Gross margin improved to 76% in Q3 from 70%, mainly because of lower royalty expense and lower inventory reserves. Year-to-date gross margin remained 72%.
- Operating income declined 17% in Q3 and 22% year to date, reflecting higher selling, general and administrative expense and, year to date, lower contingent-consideration gains.
- Net income improved in Q3 from a prior-year loss, but declined year to date. The year-to-date results included a $16.9 million loss on early extinguishment of debt.
- Research and development expense increased 7% in Q3 but decreased 16% year to date. Selling, general and administrative expense increased 11% in Q3 and 7% year to date.
- In March 2023, Pacira refinanced its Term Loan B with a $150.0 million Term Loan A and repaid the outstanding Term Loan B principal. The refinancing reduced debt and is expected to lower interest expense, although the new facility carries a variable interest rate.
Cash Flow, Liquidity and Capital Resources
- Year-to-date operating cash flow was $107.1 million. Investing activities provided $69.2 million, primarily because investment sales exceeded purchases by $89.3 million.
- Financing activities used $181.3 million, principally for Term Loan B repayment, Term Loan A repayments, refinancing costs and the Term Loan B prepayment penalty.
- Cash and cash equivalents decreased by $5.0 million from December 31, 2022. Management expects cash, investments and product-sale receipts to fund operating expenses, capital requirements and scheduled debt obligations for at least the next 12 months.
- Future liquidity needs could be affected by variable-rate debt, convertible-note repayments or conversions, manufacturing expansion, clinical development, litigation, acquisitions and potential milestone payments.
Guidance, Outlook, Commentary and Risks
- The filing does not provide a clear quantitative full-year revenue or earnings guidance figure.
- Management plans to expand commercialization of EXPAREL, ZILRETTA and iovera®, invest in clinician education and marketing, expand manufacturing capacity and advance clinical programs.
- At the filing date, the FDA was reviewing an EXPAREL supplemental application for lower-extremity nerve blocks, with a stated November 13, 2023 PDUFA date. A manufacturing-capacity supplement submitted in October 2023 had an anticipated February 2024 action date.
- Pacira planned a Phase 3 ZILRETTA shoulder osteoarthritis study in the first half of 2024 and was advancing PCRX-201, PCRX-401, PCRX-501 and intrathecal EXPAREL programs.
- Key risks include dependence on EXPAREL and a limited number of products and wholesalers, competition and potential generic EXPAREL products, patent and regulatory outcomes, manufacturing and supply-chain execution, inflation and interest rates, clinical-development risk, cybersecurity and leadership transition risk.
- David Stack announced his intention to retire as chief executive officer and chairman upon appointment of a successor. The board began a search process.
- Pacira is defending patent litigation concerning proposed generic EXPAREL products. A trial on remaining claims was scheduled for February 2024, and the company stated that it could not predict the outcome.
- A Delaware trial concerning up to $30.0 million of disputed MyoScience milestones, plus attorneys’ fees, was completed in September 2023; a decision was expected in the second half of 2024.
- Pacira reported a favorable partial summary judgment ruling in its dispute with the Research Development Foundation and expected to receive $14.5 million, but stated that the settlement gain would be recognized only when receipt becomes probable.
- Remaining potential contingent milestone payments could total up to $372.3 million for Flexion-related obligations and $43.0 million for MyoScience-related obligations, subject to achievement of specified milestones.
Most Important Facts for Investors to Verify
- Whether EXPAREL pricing pressure from 340B and contracting offsets volume growth and whether ZILRETTA and iovera® growth continues.
- The timing and outcome of the lower-extremity EXPAREL regulatory decision and the manufacturing-capacity supplement.
- The cash requirements and refinancing strategy for the $402.5 million principal amount of convertible notes due in 2025 and the remaining 2024 notes.
- The effect of the variable-rate Term Loan A on future interest expense and covenant compliance.
- The outcomes and potential financial exposure from the generic EXPAREL patent litigation, MyoScience milestone litigation and RDF royalty dispute.
- Execution of the chief executive officer succession process and the company’s ability to maintain commercial and clinical momentum.