Pacira BioSciences, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 4, 2021. Pacira develops and commercializes non-opioid pain-management products, principally EXPAREL and iovera®. The company operates as one reportable segment.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $119.0 million | $105.7 million | 13% |
| Net product sales | $118.7 million | $104.7 million | 13% |
| EXPAREL sales | $114.7 million | $101.3 million | 13% |
| iovera® sales | $3.3 million | $2.3 million | 44% |
| Gross margin | 74% | 72% | Up 2 percentage points |
| Income from operations | $19.4 million | $17.1 million | 14% |
| Net income | $10.4 million | $8.2 million | 27% |
| Diluted EPS | $0.23 | $0.19 | 21% |
| Cash flow from operations | $12.1 million | $6.2 million | 95% |
Revenue growth was led by a 12% increase in EXPAREL volume and a 4% increase in gross selling price per unit, partially offset by product mix. iovera® benefited from an expanded sales force and the pandemic-related weakness in Q1 2020. Royalty revenue declined 69% to $0.3 million, primarily due to the timing of veterinary orders.
Cost of goods sold increased 5% to $31.3 million, while gross margin improved from 72% to 74%, primarily due to increased production at the Swindon, England facility and pricing. Research and development expense was essentially flat at $15.9 million. Selling, general and administrative expense increased 8% to $48.5 million, driven mainly by higher general and administrative and stock-based compensation costs.
At March 31, 2021, cash and cash equivalents were $66.7 million, short-term investments were $523.4 million and long-term investments were $35.0 million, for total cash, cash equivalents and investments of approximately $625.0 million. Working capital was $488.2 million. Cash declined by $33.3 million during the quarter because investing outflows exceeded operating and financing inflows.
Debt and capital structure
- $160.0 million principal amount of 2.375% convertible senior notes is outstanding and due April 1, 2022; the notes were classified as current and had a carrying value of $151.6 million.
- $402.5 million principal amount of 0.750% convertible senior notes is outstanding and due August 1, 2025; carrying value was $317.3 million.
- Aggregate convertible-note principal was $562.5 million. The notes had estimated fair values of $194.5 million for the 2022 Notes and $483.0 million for the 2025 Notes.
- The 2022 Notes were not eligible for conversion based on the applicable stock-price test during the quarter. The 2025 Notes also did not meet their conversion conditions.
- Interest expense increased 16% to $7.0 million, primarily because of the 2025 Notes and related amortization of debt discount.
Cash flows, investment and operating changes
- Operating cash flow increased to $12.1 million from $6.2 million.
- Investing cash outflow was $55.7 million, including $41.4 million of net investment purchases and $13.1 million of capital expenditures for manufacturing capacity expansion.
- Financing cash inflow was $10.3 million, consisting primarily of proceeds from stock-option exercises.
- Fixed assets increased to $144.8 million from $136.7 million, including construction in progress of $80.0 million.
- Stock-based compensation was $10.1 million versus $8.8 million in the prior-year quarter.
Material developments, outlook and unusual items
- In March 2021, the FDA approved submission of an sNDA seeking expansion of EXPAREL labeling for patients aged six and older. Management described EXPAREL as the first FDA-approved long-acting local analgesic for this pediatric population.
- Pacira expects to launch EXPAREL and iovera® in targeted European countries during Q3 2021 following European marketing authorization for EXPAREL in November 2020.
- The company and Nuance Biotech mutually terminated their China commercialization agreement in April 2021 because Pacira determined that no viable regulatory pathway adequately protected its intellectual property. A $3.0 million estimated dissolution cost was recorded in Q1 2021.
- Pacira made $13.0 million of additional investments in debt and equity securities of two preclinical biopharmaceutical companies in April 2021 and may invest an additional $7.0 million if specified events occur.
- A $10.0 million MyoScience regulatory milestone payment is payable in Q2 2021. Maximum remaining MyoScience milestone payments were $58.0 million, and potential SkyePharma-related payments were up to $36.0 million.
- The company is pursuing additional EXPAREL indications, including lower-extremity nerve blocks, pediatric applications and European expansion, while continuing clinical programs for EXPAREL and iovera®.
- Management stated that existing cash, investments and expected product-sale cash flows should fund operating expenses, capital expenditures, potential note conversions and debt service for at least the next 12 months, although additional financing could be required in the future.
Risks and contingencies
- COVID-19 continued to reduce elective surgical volumes in Q1 2021. Renewed restrictions, patient reluctance or slower normalization could adversely affect EXPAREL and iovera® sales.
- Revenue and accounts receivable are highly concentrated among three wholesalers. The three largest wholesalers represented 88% of revenue and 88% of accounts receivable was attributable to three wholesalers at March 31, 2021.
- The company relies substantially on EXPAREL and iovera®, a limited number of manufacturing sites, sole-source suppliers and third-party service providers.
- Fortis Advisors, representing former MyoScience securityholders, filed a counterclaim seeking $40.0 million in milestone payments and attorneys’ fees. Pacira disputes the claim, and the filing states that the outcome cannot currently be predicted.
- Potential future cash requirements include convertible-note maturities or conversions, manufacturing expansion, pediatric and other clinical trials, contingent consideration, legal matters and strategic investments.
- Interest-rate sensitivity is material: a hypothetical 100-basis-point increase would have reduced the fair value of available-for-sale investments by approximately $2.7 million.
Important facts for investors to verify
- Whether elective-surgery volumes and EXPAREL utilization continue to recover as COVID-19 conditions improve.
- The timing and commercial impact of the planned European launches and potential additional EXPAREL label expansions.
- Funding and refinancing plans for the $160.0 million of 2022 Notes due in April 2022 and the $402.5 million of 2025 Notes.
- The outcome of the $40.0 million MyoScience milestone litigation and the timing of the $10.0 million Q2 2021 milestone payment.
- Execution and cost of manufacturing-capacity expansions in San Diego and Swindon.
- Changes in wholesaler concentration, product allowances, gross margin and the sustainability of iovera® growth.
- The filing reports no material changes to previously disclosed risk factors and states that disclosure controls were effective as of March 31, 2021.