Pacira BioSciences, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; unaudited interim results. Pacira operates as one reportable segment focused on non-opioid pain-management and regenerative-health products, principally EXPAREL and iovera®.
Business Context and Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $75.5 million, down 26% | $181.2 million, down 7% |
| Net product sales | $75.2 million, down 26% | $180.0 million, down 7% |
| EXPAREL and bupivacaine sales | $73.8 million, down 26% | $176.3 million, down 8% |
| iovera® sales | $1.4 million, down 31% | $3.7 million, up 80% |
| Gross margin | 70%, versus 75% | 71%, versus 73% |
| Income (loss) from operations | $(7.1) million | $9.9 million |
| Net income (loss) | $(7.3) million, or $(0.17) per diluted share | $0.9 million, or $0.02 per diluted share |
| Operating cash flow | Not separately disclosed | $(9.4) million, versus $26.3 million provided |
Second-quarter results were materially affected by COVID-19-related postponements and suspensions of elective surgeries. EXPAREL unit volume declined 29% in the quarter and 12% year to date, partially offset by higher average selling prices. Gross margin was pressured by inventory write-offs, unplanned downtime at the Swindon manufacturing suite, and lower iovera® margins.
Research and development expense declined 24% in the quarter and 9% year to date, while selling, general and administrative expense declined 12% and 9%, respectively. Stock-based compensation increased to $9.2 million in the quarter and $18.1 million year to date, compared with $7.8 million and $15.2 million in the comparable periods.
Liquidity, Balance Sheet, and Debt
- At June 30, 2020, cash and cash equivalents were $78.6 million; short- and long-term investments totaled $256.5 million, providing total cash and investments of approximately $335.1 million.
- Working capital was $385.2 million. Total assets were $866.1 million and total liabilities were $478.0 million.
- Convertible senior notes due 2022 had $345.0 million of principal outstanding at June 30, with a $314.2 million carrying value. Their fair value was $378.2 million.
- Operating lease liabilities totaled $81.5 million, including $7.5 million due during the remaining six months of 2020.
- Operating cash flow was negative year to date, primarily because of lower sales, $15.0 million of contingent-consideration payments related to the MyoScience acquisition, increased commercial investment, and working-capital changes.
- Management stated that available cash, investments, product-sale cash flows, and financing resources were expected to fund operations, capital expenditures, debt service, and potential note conversions through at least August 6, 2021.
Material Changes and Subsequent Events
- On July 10, 2020, Pacira issued $402.5 million of 0.75% convertible senior notes due 2025, receiving approximately $389.9 million of net proceeds before the use of proceeds described below.
- Pacira used approximately $211.1 million, including accrued interest, to repurchase $185.0 million of the 2022 notes. Remaining 2022-note principal was reduced to $160.0 million.
- The company terminated its DePuy Synthes co-promotion agreement for EXPAREL orthopedic procedures and estimated termination-related costs or payments of up to $12.0 million.
- In July 2020, Pacira paid a $3.5 million global settlement resolving a five-year Department of Justice, Health and Human Services, state, and private-party investigation concerning EXPAREL marketing practices. The amount had been previously accrued, and Pacira admitted no wrongdoing.
- Remaining potential contingent consideration from the MyoScience acquisition was up to $58.0 million at June 30, 2020. Potential remaining Skyepharma milestone obligations totaled up to $36.0 million.
- The company reported no material legal proceedings other than the resolved settlement and stated that its disclosure controls were effective as of June 30, 2020.
Outlook, Management Commentary, and Risks
- Management expected COVID-19 to continue affecting elective procedures, product demand, sales-force access, clinical-trial enrollment, and commercial spending. Future restrictions or renewed procedure postponements could materially reduce revenue and cash flow.
- Manufacturing sites remained operational, and management reported no material supply-chain impact as of the filing. The Fremont iovera® facility was closed for three weeks in March and resumed normal operations in April.
- Pacira continued investments in EXPAREL label expansion, iovera® clinical development, manufacturing-capacity expansion, international commercialization, and its product pipeline.
- The FDA accepted the pediatric EXPAREL supplemental application in August 2020, after quarter-end, with an expected action date of March 22, 2021. The filing also described planned or ongoing STRIDE, PREPARE, and other clinical programs, with COVID-19-related delays.
- Key risks include dependence on EXPAREL and iovera®, concentration among three major wholesalers, competition, manufacturing and sole-source supplier dependence, regulatory and clinical-trial uncertainty, intellectual-property protection, cybersecurity, debt conversion or repayment requirements, and potential additional milestone and termination payments.
Investor Verification Points
- Verify the pace and durability of recovery in elective surgeries and the resulting EXPAREL and iovera® volume trends.
- Reconcile the negative year-to-date operating cash flow with reported net income and monitor working-capital normalization.
- Assess the effect of the July 2020 refinancing, including the reduced 2022-note balance, 2025-note conversion features, and potential dilution.
- Track the up-to-$12.0 million DePuy Synthes termination costs and the timing of remaining MyoScience and Skyepharma contingent obligations.
- Evaluate gross-margin recovery, manufacturing-capacity spending, Swindon downtime effects, and inventory-write-off exposure.
- Monitor FDA and international regulatory decisions, clinical-trial delays, and the potential reversal of deferred-tax valuation allowances.