Pacira Biosciences, Inc. annual report, FY2023

Pacira BioSciences, Inc. — 2023 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 10-K, not a standalone fourth-quarter report. Pacira operates as a single reportable segment focused on non-opioid pain management and regenerative health solutions.

Business Context

Pacira commercializes three principal products: EXPAREL, a long-acting local analgesic; ZILRETTA, an extended-release corticosteroid for osteoarthritis knee pain; and iovera, a handheld cryoanalgesia device. EXPAREL remains the primary revenue driver. The company also develops pipeline programs including PCRX-201, a gene therapy candidate for osteoarthritis, and additional pMVL-based products.

As of December 31, 2023, Pacira had 712 employees. Frank D. Lee became Chief Executive Officer effective January 2, 2024, succeeding David Stack.

Key Financial Metrics

Metric	2023	2022	Change
Total revenues	$675.0 million	$666.8 million	1%
Net product sales	$672.2 million	$664.2 million	1%
Income from operations	$87.7 million	$60.0 million	45%
Net income	$42.0 million	$15.9 million	164%
Diluted earnings per share	$0.89	$0.34	Increase
Gross margin	73%	70%	+3 percentage points
Operating cash flow	$154.6 million	$145.3 million	6%
Cash and investments	$281.0 million	Not clearly stated on a comparable basis in the filing summary	—
Working capital	$412.6 million	Not clearly stated in the filing summary	—

Revenue concentration remained high: EXPAREL generated $538.1 million, or 80% of total revenue; ZILRETTA generated $111.1 million, or 16%; and iovera generated $19.7 million. Three wholesalers represented 77% of total revenue: McKesson 33%, Cardinal Health 24% and AmerisourceBergen 20%.

Revenue and Margin Developments

EXPAREL sales were essentially flat, despite a 4% increase in gross vial volume. A 3% reduction in net selling price, primarily from 340B enrollment and expanded contracting, offset volume growth and a January 2023 price increase.
ZILRETTA sales increased 5%, reflecting a 3% increase in kit volume and a 2% increase in selling price per unit, net of discounting.
iovera sales increased 29%, driven primarily by a 33% increase in Smart Tip volume.
Cost of goods sold declined 7% to $184.7 million, improving gross margin to 73%. Benefits included lower inventory reserves, the absence of certain 2022 accelerated depreciation and lower royalty expense.
Research and development expense declined 10% to $76.3 million, while selling, general and administrative expense increased 6% to $269.4 million. Sales and marketing investment increased in connection with EXPAREL expansion, clinician education and preparation for NOPAIN.

Cash Flow, Liquidity and Debt

Operating activities generated $154.6 million of cash. Investing activities provided $77.5 million, primarily because investment maturities exceeded purchases. Financing activities used $183.0 million.
Pacira refinanced its Term Loan B in March 2023 with a $150.0 million Term Loan A facility maturing in March 2028. The company repaid the remaining Term Loan B principal and recognized a $16.9 million loss on early extinguishment of debt.
At December 31, 2023, principal debt consisted of $402.5 million of 0.750% convertible notes due August 2025, $116.6 million outstanding under the Term Loan A facility and $8.6 million of Flexion convertible notes due May 2024.
The Term Loan A was secured, variable-rate debt with borrowings at 8.46% at year-end. Pacira was in compliance with its financial covenants.
Management stated that existing cash, investments and operating cash flow were expected to fund operating needs, capital expenditures and debt obligations for at least the next 12 months. The filing also states that additional financing may be required depending on product performance, capital needs, litigation, clinical development and debt refinancing requirements.

Material Changes Versus 2022

Profitability improved materially, with operating income rising from $60.0 million to $87.7 million and net income rising from $15.9 million to $42.0 million.
Gross margin expanded by three percentage points, while total revenue grew only 1%.
The 2023 results benefited from lower interest expense and higher interest income, partially offset by the $16.9 million debt extinguishment loss and a $19.7 million income tax expense, compared with a $2.6 million tax benefit in 2022.
Unlike 2022, Pacira recorded no impairment of acquired in-process research and development. In 2022, it recorded a $26.1 million impairment related to ZILRETTA’s shoulder osteoarthritis program.
Research and development spending shifted toward product development, manufacturing capacity expansion and PCRX-201, while clinical and preclinical spending declined after completion of EXPAREL lower-extremity nerve-block studies.
Pacira recognized a $3.4 million gain from a reduction in the fair value of Flexion contingent consideration, compared with a $29.5 million gain in 2022.

Guidance, Outlook and Unusual Items

In November 2023, the FDA approved EXPAREL for adult adductor canal block and sciatic nerve block in the popliteal fossa. Pacira launched these indications in February 2024.
The company is prioritizing commercial readiness for the NOPAIN Act, which provides separate Medicare reimbursement for qualifying non-opioid therapies in outpatient surgical settings beginning January 1, 2025. Management expects NOPAIN to support accelerated growth beginning in 2025, but the filing does not provide formal 2024 or 2025 revenue guidance.
In February 2024, the FDA approved a 200-liter EXPAREL manufacturing suite in San Diego. Management expects the facility to improve product mix and EXPAREL gross margins over time.
In February 2024, Pacira initiated a restructuring plan focused on reshaping the executive team, reallocating resources toward the U.S. commercial portfolio and preparing for NOPAIN. Approximately $5 million of restructuring charges were recognized in February 2024.
Pacira expects to receive approximately $14.5 million from the Research Development Foundation for royalties paid under protest relating to the 45-liter EXPAREL manufacturing process. The remaining litigation concerning royalties for the 200-liter process remains unresolved.
Potential Flexion contingent consideration payments could total up to $372.3 million through 2030 if specified regulatory and commercial milestones are achieved. The recorded contingent consideration liability was $24.7 million at year-end.

Principal Risks and Contingencies

Revenue is heavily dependent on EXPAREL and, to a lesser extent, ZILRETTA. Competition includes generic analgesics, immediate-release steroids, alternative long-acting bupivacaine products, catheter-based systems and competing cryotherapy devices.
Commercial performance depends on payer coverage, reimbursement, hospital formulary approvals, physician adoption and the successful implementation of NOPAIN.
Manufacturing concentration is significant. EXPAREL, ZILRETTA and iovera rely on a limited number of company-operated and third-party facilities, including Thermo Fisher and Carlisle.
Pacira faces patent litigation concerning proposed generic versions of EXPAREL filed by eVenus and related parties. Trial proceedings occurred in February 2024, with the outcome not yet determinable from the filing.
A MyoScience milestone lawsuit involves potential claims of $30.0 million plus attorneys’ fees; a decision was expected before the end of the first half of 2024.
The company carries substantial debt, including $402.5 million of convertible notes due in August 2025, and may need to refinance or otherwise fund future debt maturities.
Additional risks include clinical and regulatory uncertainty, product liability, cybersecurity and data privacy incidents, inflation and supply-chain disruption, key-personnel transitions, impairment of goodwill or intangible assets, and concentration of receivables and revenue among major wholesalers.

Investor Verification Checklist

Verify the outcome and financial implications of the eVenus EXPAREL patent litigation and the MyoScience milestone litigation.
Assess the company’s plan and available liquidity for the $402.5 million convertible notes due in August 2025.
Track EXPAREL volume, net price, 340B and contracting effects, and adoption of the new lower-extremity nerve-block indications.
Evaluate whether NOPAIN implementation produces the expected reimbursement and utilization benefits beginning in 2025.
Monitor gross-margin improvement from the 200-liter manufacturing suite and the company’s ability to scale production without excess capacity or supply disruptions.
Review the probability and timing of up to $372.3 million of Flexion contingent consideration payments.
Confirm the impact of the February 2024 restructuring, including approximately $5 million of charges and changes in commercial and pipeline priorities.
Consider customer concentration, with three wholesalers accounting for 77% of 2023 revenue, and the company’s limited number of approved manufacturing sites.