Pacira Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2016; filed August 4, 2016. The interim financial statements are unaudited and prepared under U.S. GAAP. The company develops, manufactures, and commercializes DepoFoam-based pharmaceutical products, primarily EXPAREL and DepoCyt(e).
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total revenue | $69.6 million | $59.1 million | $135.1 million | $117.5 million |
| Net product sales | $67.7 million | $58.1 million | $132.2 million | $115.1 million |
| EXPAREL sales | $65.8 million | $57.0 million | $129.5 million | $112.9 million |
| Operating income (loss) | $(6.4) million | $1.8 million | $(8.7) million | $5.2 million |
| Net income (loss) | $(8.0) million | $0.01 million | $(11.8) million | $1.3 million |
| Net income (loss) per share | $(0.21) | $0.00 | $(0.32) | $0.03 |
| Operating cash flow | Not separately provided | Not separately provided | $4.4 million | $6.3 million |
- EXPAREL sales increased 15% year over year in both the quarter and six-month period, primarily from higher sales volume. DepoCyt(e) sales increased 78% in the quarter and 21% year to date.
- Gross margin on product-related revenue was approximately 66% in Q2 and 68% year to date, versus 68% and 69%, respectively, in the prior-year periods.
- Approximate total-revenue operating margins were negative 9% for Q2 and negative 6% year to date; net margins were approximately negative 11% and negative 9%, respectively.
- Research and development expense increased 157% in Q2 and 96% year to date, reflecting EXPAREL clinical trials, pipeline development, and facility-related costs.
- Selling, general and administrative expense increased 26% in Q2 and 23% year to date, including a $7.2 million estimated CrossLink termination fee.
- Cash and cash equivalents were $25.3 million at June 30, 2016, compared with $57.0 million at December 31, 2015. Short-term investments were $137.4 million, producing cash and short-term investments of $162.7 million. Working capital was $107.6 million.
- Net cash used in investing activities was $41.5 million, including $15.9 million of capital expenditures, net purchases of investments, and $3.9 million of contingent consideration payments.
- The company had $118.5 million principal amount of 3.25% convertible senior notes due February 2019, carried at $106.4 million net of discount and issuance costs. The notes were classified as current because conversion conditions were met and remained convertible through September 30, 2016.
Material changes versus the prior comparable period
- Revenue growth did not translate into profitability: the company moved from near break-even net income in Q2 2015 to an $8.0 million net loss in Q2 2016, and from $1.3 million of year-to-date net income to an $11.8 million loss.
- Operating expenses rose faster than revenue, driven by clinical development, product development, expanded commercial infrastructure, promotional activity, and the CrossLink termination charge.
- Gross margin declined modestly because of higher costs associated with preparing the new Swindon, England manufacturing site and approximately $4.9 million of unplanned manufacturing shutdown and other charges in the first six months, compared with $4.2 million in the prior-year period.
- Cash and cash equivalents declined by $31.7 million during the first six months, although the company increased its short-term investment balance.
- In June 2016, the company recorded an $8.0 million Skyepharma milestone payable after annual EXPAREL net sales collected reached $250.0 million. Payment was expected in the third quarter of 2016.
- The company notified CrossLink that it would terminate the EXPAREL promotion agreement effective September 30, 2016. The estimated $7.2 million termination fee is payable over two years beginning in the fourth quarter of 2016.
Outlook, commentary, risks, and unusual items
- Management stated that existing cash, short-term investments, and cash from product sales were expected to fund operating expenses, capital expenditures, potential note conversions, and debt service for at least the next 12 months. The company had no committed external financing sources and acknowledged that additional financing may be required in the future.
- Management expected to complete enrollment in EXPAREL nerve-block and infiltration knee-replacement trials by early 2017, initiate a spine-surgery randomized trial in the second half of 2016, and pursue required pediatric trials.
- The company anticipated a late-third-quarter 2016 EXPAREL launch in the oral and maxillofacial market. DepoMeloxicam was expected to enter a Phase 1 trial in the second half of 2016, while DepoTranexamic Acid had entered clinical development with a Phase 2 trial expected in the second half of 2016.
- Future cash requirements include manufacturing expansion, clinical trials, legal and regulatory activities, potential Skyepharma milestones of up to $36.0 million, and possible repayment or settlement of the convertible notes.
- The Department of Justice was investigating marketing and promotional practices related to EXPAREL. The company was cooperating but could not predict the timing, outcome, or financial impact.
- Revenue and receivables were highly concentrated: the three largest customers represented 85% of Q2 revenue and three customers represented 80% of accounts receivable at June 30, 2016.
- The company remained heavily dependent on EXPAREL, a limited number of products and customers, a single manufacturing site during expansion, third-party suppliers and service providers, regulatory approvals, intellectual property protection, and market acceptance.
- A hypothetical 100-basis-point increase in interest rates would have reduced the fair value of available-for-sale investments by approximately $0.5 million. A 10% decline in the euro would have reduced Q2 revenue by approximately $0.2 million.
- Management reported effective disclosure controls and procedures as of June 30, 2016, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether EXPAREL volume growth and planned market expansion can offset rising commercialization, clinical, manufacturing, and legal costs.
- The timing and cash impact of the $118.5 million convertible-note principal and any conversion premium, including potential dilution of approximately 1.3 million shares based on the June 30, 2016 valuation.
- The final amount and payment schedule of the CrossLink termination fee and the effect of terminating the distributor relationship on EXPAREL sales execution.
- The outcome and potential financial or operational consequences of the DOJ inquiry.
- Progress, enrollment, regulatory status, and trial results for EXPAREL, DepoMeloxicam, and DepoTranexamic Acid.
- Manufacturing expansion costs, operational performance at the Swindon facility, and the reported shutdown-related charges.
- Remaining Skyepharma milestones, including the potential $32.0 million payment tied to $500.0 million of annual EXPAREL net sales collected and the $4.0 million European commercial-sale milestone.