Pacira BioSciences, Inc. — Q3 2022 Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022; unaudited interim results. Pacira develops and commercializes non-opioid pain-management products, principally EXPAREL, ZILRETTA and iovera. The company operates as one reportable segment. ZILRETTA was added through the November 2021 Flexion acquisition.
Key Financial Metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total revenue | $167.5 million | $127.7 million | $494.9 million | $382.3 million |
| Net product sales | $166.6 million | $126.8 million | $492.6 million | $380.4 million |
| Income from operations | $21.3 million | $31.4 million | $69.9 million | $85.7 million |
| Net income (loss) | $(0.7) million | $17.7 million | $26.0 million | $47.1 million |
| Diluted EPS | $(0.02) | $0.39 | $0.56 | $1.03 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $103.2 million | $102.5 million |
- Revenue growth: Q3 revenue increased 31%; nine-month revenue increased 29%. EXPAREL sales rose 9% in both periods to $132.6 million in Q3 and $398.9 million year to date. ZILRETTA contributed $26.5 million in Q3 and $77.5 million year to date. iovera sales rose 7% in Q3 but declined 5% year to date.
- Margins: Gross margin was 70% in Q3 and 72% year to date, compared with 73% and 74%, respectively, in the prior periods. Approximate operating margins were 12.7% in Q3 and 14.1% year to date, versus 24.6% and 22.4% in the comparable periods.
- Expense pressure: Q3 research and development expense increased 68% to $19.4 million; selling, general and administrative expense increased 28% to $61.3 million; and acquired-intangible amortization increased to $14.3 million from $2.0 million, primarily due to ZILRETTA.
- Liquidity: At September 30, 2022, cash and cash equivalents were $109.4 million, available-for-sale investments were $236.7 million, and management reported combined cash and investments of $346.1 million and working capital of $401.9 million.
- Debt: Total debt carrying value was $747.9 million, comprising approximately $343.7 million under the Term Loan B, $395.5 million of 2025 convertible notes and $8.6 million of Flexion 2024 convertible notes. The Term Loan B bore interest at 9.21% at quarter end and matures in December 2026.
Material Changes Versus the Prior Comparable Period
- Revenue benefited from the first full year of ZILRETTA sales following the Flexion acquisition and continued EXPAREL volume and price growth.
- Profitability declined despite higher revenue because of lower gross margin, increased clinical and commercial investment, higher amortization, higher interest expense and a $10.0 million impairment of an equity investment.
- Interest expense increased 34% in Q3 and 36% year to date, primarily because of the Term Loan B entered into in December 2021.
- Cash declined by $476.2 million during the first nine months, primarily due to debt repayments and investment purchases. Financing outflows included $157.0 million to settle the 2022 convertible notes, $192.6 million to repurchase Flexion 2024 notes and $18.8 million of Term Loan principal repayments.
- The company adopted ASU 2020-06, resulting in convertible debt being accounted for wholly as debt and a January 1, 2022 increase in net debt of approximately $64.9 million.
Guidance, Outlook, Risks and Unusual Items
- No specific quantitative revenue or earnings guidance is provided in the filing. Management expects to continue investing in product commercialization, clinical development, manufacturing capacity and potential strategic transactions.
- Management expects existing cash, investments and product-sale cash flows to fund operating expenses, capital expenditures, debt service and other needs for at least the next 12 months, but notes that additional financing may be required in the future and is not assured.
- Management reported positive Phase 3 results for EXPAREL lower-extremity nerve-block studies and planned to submit an FDA supplemental application in early 2023. The company also reported a positive European regulatory opinion for pediatric use of EXPAREL, with a European Commission decision expected in November 2022.
- Development of PCRX-301 was discontinued because of insufficient clinical efficacy versus placebo and hydrogel formulation issues. The company plans additional ZILRETTA studies, including a shoulder osteoarthritis study expected to begin in 2023.
- COVID-19-related staffing, elective-surgery and supply-chain disruption, inflation, interest-rate increases and manufacturing constraints remain risks. Three major wholesalers represented 75% of Q3 revenue and 76% of nine-month revenue.
- Contingent consideration liabilities totaled $34.2 million at quarter end. Future Flexion-related payments could reach $425.5 million in aggregate, while remaining MyoScience milestone payments could reach $43.0 million, subject to achievement of milestones.
- Material legal matters include MyoScience milestone litigation, patent litigation concerning potential generic EXPAREL products, and a dispute over royalty obligations to the Research Development Foundation. The filing states that outcomes cannot currently be predicted.
Most Important Facts to Verify
- Whether EXPAREL demand and elective-surgery volumes remain strong enough to offset pandemic-related, staffing and reimbursement pressures.
- The sustainability of ZILRETTA growth and the recoverability of its acquired intangible assets following the identified reduction in near-term projected cash flows.
- Progress and regulatory outcomes for the planned EXPAREL supplemental application and pediatric European authorization.
- Term Loan B covenant compliance, variable-rate exposure and the company’s ability to manage the 2025 convertible notes and other debt maturities.
- Potential cash obligations from Flexion and MyoScience contingent consideration and the outcomes of the pending litigation and royalty dispute.
- The impact of continued investment in sales, research, manufacturing capacity and acquisitions on operating margins and free cash generation.