Pacira Pharmaceuticals, Inc. — Q1 2013 Form 10-Q Summary
Reporting period: Three months ended March 31, 2013; filed May 8, 2013. The filing identifies the company as Pacira Pharmaceuticals, Inc. The company focuses on DepoFoam-based pharmaceutical products, led by EXPAREL, which was commercially launched in April 2012, and manufactures DepoCyt(e) for commercial partners.
Financial Highlights
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $11.6 million | $7.8 million | 48% increase |
| EXPAREL product sales | $10.4 million | None | New commercial product |
| Net product sales | $10.8 million | $0.4 million | 2,329% increase |
| Operating loss | $(18.6) million | $(11.1) million | Worsened by $7.5 million |
| Net loss | $(23.1) million | $(11.9) million | Worsened by $11.2 million |
| Basic and diluted loss per share | $(0.71) | $(0.47) | Worsened |
| Cash used in operating activities | $(13.8) million | $(17.5) million | Improved by $3.8 million |
Cost of revenues was $11.4 million, producing approximately $0.2 million of gross profit and an approximately 1.7% gross margin. The operating margin was approximately negative 161%, and the net margin was approximately negative 200%.
Research and development expense increased to $5.9 million from $1.3 million, primarily due to EXPAREL nerve-block clinical trials, manufacturing-process development and an animal toxicity study. Selling, general and administrative expense increased 16% to $12.9 million, including $8.3 million of sales and marketing expense.
At March 31, 2013, cash and cash equivalents were $26.3 million and short-term investments were $84.0 million. Including restricted cash, liquidity was $110.2 million, and working capital was $116.3 million. Total assets were $185.2 million, compared with $112.1 million at December 31, 2012.
Debt and Financing
In January 2013, the company issued $120.0 million of 3.25% convertible senior notes due February 1, 2019, generating net proceeds of $115.3 million. The proceeds were used to repay the $27.5 million Oxford credit facility and related fees. Net debt carrying value increased to $95.9 million from $25.2 million at year-end after the convertible debt discount.
The financing generated a $3.4 million loss on early extinguishment of debt and increased interest expense to $1.5 million from $0.5 million. The notes have an initial conversion price of approximately $24.82 per share and are senior unsecured obligations.
Cash Flow and Liquidity
- Investing cash use increased to $56.3 million, principally because $71.8 million was invested in short-term investments, partly offset by $18.8 million of investment sales.
- Financing activities provided $86.2 million, primarily from the convertible notes issuance, after debt repayment and financing costs.
- Cash and cash equivalents increased by $16.1 million during the quarter to $26.3 million.
- Management stated that cash, investments and product-sale revenue should fund planned operations, capital expenditures and debt service for at least the next 12 months, through March 31, 2014, but acknowledged that additional financing may be required.
Material Changes and Outlook
- EXPAREL became the primary revenue driver, generating $10.4 million in quarterly sales, while collaborative licensing and development revenue declined 96% to $0.2 million because prior-period milestone revenue was recognized in connection with the terminated EKR agreement.
- Royalty revenue declined 41% to $0.5 million; DepoCyt(e) sales declined 7% to $0.4 million.
- The company continued to incur substantial losses and negative operating cash flow and expects additional expenses related to commercialization, clinical development, manufacturing expansion, regulatory activities and public-company infrastructure.
- Development priorities included Phase 2/3 and Phase 3 pivotal trials evaluating EXPAREL for femoral and intercostal nerve blocks, respectively, as well as required pediatric trials and potential manufacturing-process improvements.
- Science Center campus leases were extended through August 31, 2020, with an option for an additional five years. Aggregate minimum lease payments were $35.6 million as of March 31, 2013.
- Management reported no material litigation, no material changes to previously disclosed risk factors, and effective disclosure controls as of March 31, 2013.
Key Risks, Contingencies and Unusual Items
- Commercial success depends heavily on market adoption, pricing, reimbursement and continued growth of EXPAREL.
- Clinical-trial results, FDA requirements and regulatory approvals could affect expansion into additional indications and future product candidates.
- Three customers represented 77% of quarterly revenue, and three customers represented 76% of accounts receivable at March 31, 2013.
- The company maintained a full valuation allowance on remaining deferred tax assets because of significant doubt regarding their utilization. The $0.4 million tax benefit resulted from selling unused New Jersey net operating losses.
- The company had no committed external sources of funds and stated that future equity, debt or collaboration financing may be unavailable or available only on unfavorable terms.
Investor Verification Items
- Verify whether EXPAREL sales growth and gross margins improve sufficiently to offset commercialization and clinical-development spending.
- Track customer concentration, wholesaler purchasing patterns, product returns, rebates and other sales deductions.
- Review the terms, conversion triggers, potential dilution and 2019 maturity obligations of the convertible notes.
- Monitor cash burn, short-term investment maturities and the company’s stated ability to fund operations through March 31, 2014.
- Confirm progress, results and regulatory status of the nerve-block and pediatric clinical programs.
- Assess remaining earn-out and royalty obligations, lease commitments and potential future capital requirements.