Pacira BioSciences, Inc. — Q1 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 the iovera° cryoanalgesia system. The filing covers the unaudited three months ended March 31, 2023, compared with the three months ended March 31, 2022. The Company operates as one reportable segment.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $160.3 million | $158.0 million | +1% |
| Net product sales | $159.4 million | $157.4 million | +1% |
| Gross margin | 69% | 77% | Down 8 percentage points |
| Operating income (loss) | $(3.1) million | $17.4 million | Declined $20.5 million |
| Net income (loss) | $(19.5) million | $6.8 million | Declined $26.4 million |
| Basic and diluted EPS | $(0.43) | $0.15 | Declined $0.58 |
| Operating cash flow | $19.1 million | $30.8 million | Down $11.6 million |
- EXPAREL sales were $130.4 million, up 1%; ZILRETTA sales were $24.3 million, up 3%; iovera° sales were $4.0 million, up 32%; and bupivacaine liposome injectable suspension sales were $0.7 million, down 56%.
- Royalty revenue increased 60% to $0.9 million.
- Cost of goods sold increased 36% to $49.0 million. Management attributed the margin decline primarily to EXPAREL inventory reserves, higher product costs, discounting and lower net selling prices.
- Research and development expense declined 21% to $17.1 million, while selling, general and administrative expense increased 10% to $70.8 million.
- Interest income increased to $3.1 million from $0.3 million, while interest expense declined 6% to $9.6 million.
- The Company recorded a $16.9 million loss on early extinguishment of debt and an $11.6 million fair-value charge for Flexion contingent consideration.
- At March 31, 2023, cash and cash equivalents were $35.5 million, available-for-sale investments totaled $146.7 million, and total cash plus available-for-sale investments was approximately $182.3 million. Working capital was $277.4 million.
- Total debt carrying value was $553.8 million, including $396.7 million of 0.750% convertible notes due August 2025, $8.6 million of 3.375% convertible notes due May 2024 and $148.4 million under the new Term Loan A.
Material changes versus the prior comparable period
- Revenue grew only modestly despite higher EXPAREL volume. EXPAREL gross vial volume increased 6.2%, but greater discounting, including 340B-related discounts and strategic partnerships, limited net sales growth.
- Sales-related allowances increased to $30.6 million, or 16.2% of gross product sales, from $16.7 million, or 9.7%, primarily because of EXPAREL’s participation in the 340B program and higher chargeback-related allowances.
- Operating results shifted from income to a loss, driven by lower gross margin, higher selling and administrative costs, the Flexion contingent consideration charge and debt extinguishment costs.
- Operating cash flow decreased partly because of a $13.0 million licensing-agreement termination fee and lower gross margin.
- On March 31, 2023, Pacira refinanced its Term Loan B with a $150.0 million secured Term Loan A maturing in March 2028 and cash on hand. The Term Loan B had $287.5 million of principal outstanding when repaid, and the refinancing reduced principal by approximately $137.5 million.
- The Term Loan A carried a 7.97% interest rate at quarter-end, requires quarterly principal payments beginning June 30, 2023 and includes a balloon payment of approximately $85.3 million at maturity.
Guidance, outlook, commentary and risks
The filing does not provide clear quantitative full-year revenue or earnings guidance. Management expects existing cash, investments and operating cash flow to fund operating expenses, capital expenditures and debt obligations for at least the next 12 months, but notes that additional financing could be required and is not committed.
- Pacira submitted an EXPAREL supplemental New Drug Application for femoral and sciatic nerve blocks; the anticipated FDA action date was November 13, 2023.
- Management expects continued investment in EXPAREL capacity expansion, a ZILRETTA capital project in England, sales and marketing, clinical development and clinician-training facilities.
- Planned or ongoing development includes additional EXPAREL pediatric work, a potential stellate ganglion block indication, a ZILRETTA shoulder osteoarthritis trial, PCRX-201 and other pMVL-based programs.
- Remaining potential contingent milestone payments include up to $372.3 million related to the Flexion acquisition and up to $43.0 million related to the MyoScience acquisition, subject to achievement of applicable milestones.
- Material legal matters include MyoScience milestone litigation involving a claimed $30.0 million of remaining milestones plus attorneys’ fees, patent litigation concerning generic versions of EXPAREL, and a dispute with the Research Development Foundation over royalty obligations.
- Key operating risks include dependence on EXPAREL and ZILRETTA, concentration among wholesalers, competition and generic entry, manufacturing and supply-chain constraints, inflation and interest-rate exposure, regulatory and clinical-development uncertainty, contingent consideration obligations and litigation outcomes.
- Three wholesalers represented 79% of revenue and 76% in the prior-year quarter. Three wholesalers also represented 76% of accounts receivable at March 31, 2023.
Important facts for investors to verify
- Whether EXPAREL net sales can accelerate while 340B participation, contracting and other gross-to-net adjustments remain elevated.
- The sustainability of the 69% gross margin and the extent of future EXPAREL inventory reserves or manufacturing-cost pressure.
- The timing and cash requirements for the $402.5 million principal amount of convertible notes due in 2025 and the $8.6 million notes due in 2024.
- Compliance with the Term Loan A maximum 3.00-to-1.00 senior secured net leverage ratio and minimum 1.50-to-1.00 fixed-charge coverage ratio.
- The outcome and potential financial exposure from the MyoScience, EXPAREL patent and Research Development Foundation disputes.
- Potential Flexion and MyoScience milestone payments, including the assumptions underlying the $39.7 million contingent consideration liability.
- Progress on the EXPAREL sNDA, manufacturing-capacity expansion and other clinical programs, none of which guarantees regulatory approval or commercial success.