Pacira BioSciences, Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; filed February 28, 2023. Pacira operates as a single segment focused on non-opioid pain management and regenerative health solutions. Its commercial products are EXPAREL, ZILRETTA and iovera. The company acquired Flexion Therapeutics in November 2021, adding ZILRETTA and related pipeline assets.
Financial performance and liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $666.8 million | $541.5 million | 23% |
| Net product sales | $664.2 million | $539.0 million | 23% |
| Income from operations | $60.0 million | $89.9 million | (33%) |
| Net income | $15.9 million | $42.0 million | (62%) |
| Diluted EPS | $0.34 | $0.92 | (63%) |
| Gross margin | 70% | 74% | (4) percentage points |
| Operating cash flow | $145.3 million | $125.7 million | 16% |
- Product revenue mix: EXPAREL sales were $536.9 million, up 6%, and represented 81% of total revenue. ZILRETTA sales were $105.5 million, compared with $12.7 million for the partial post-acquisition period in 2021. iovera sales declined 6% to $15.3 million. Veterinary bupivacaine liposome sales increased 80% to $6.5 million.
- Profitability: Net margin was approximately 2.4%, compared with approximately 7.8% in 2021. Cost of goods sold increased 42% to $199.3 million, while gross margin declined because of inventory reserves, accelerated depreciation, and purchase-accounting step-up costs related to ZILRETTA.
- Operating expenses: Research and development increased 53% to $84.8 million, and selling, general and administrative expense increased 28% to $254.5 million. Amortization of acquired intangible assets increased to $57.3 million from $13.6 million.
- Unusual items: Pacira recorded a $26.1 million impairment of acquired in-process research and development related to ZILRETTA shoulder osteoarthritis development, a $10.0 million impairment of an equity investment, and $18.2 million of acquisition-related gains, primarily from reduced contingent-consideration estimates.
- Cash and working capital: Cash and cash equivalents were $104.1 million, available-for-sale investments totaled $221.7 million, and management reported combined cash and available-for-sale investments of $325.9 million. Working capital was $350.6 million.
- Cash flow: Operating cash flow was $145.3 million. Investing cash flow was negative $225.2 million, including $150.1 million of net available-for-sale investment purchases, $30.1 million of capital expenditures and a $32.0 million milestone payment. Financing cash flow was negative $401.5 million, primarily from debt repayments.
Debt and liquidity
- Gross debt principal was approximately $708.0 million at year-end, comprising $402.5 million of 0.750% convertible notes due August 2025, $296.9 million of term-loan principal due December 2026 and $8.6 million of 3.375% convertible notes due May 2024.
- The term loan was reduced through scheduled payments and a $50.0 million prepayment in December 2022. Its outstanding borrowings carried a variable interest rate of 10.78% at year-end, creating material interest-rate exposure.
- The credit agreement requires a first-lien net leverage ratio no greater than 1.75-to-1.00 and minimum liquidity of $150.0 million. Pacira reported compliance with its financial covenants at December 31, 2022.
- Contractual obligations included $37.5 million of scheduled term-loan principal payments in each of 2023 and 2024, $42.2 million in 2025 and $179.7 million in 2026, excluding potential refinancing or conversion effects. Management stated that existing liquidity and expected operating cash flow should fund operating needs, capital expenditures and debt obligations for at least the next 12 months.
Material changes versus the prior comparable period
- Revenue benefited from the first full year of ZILRETTA ownership following the Flexion acquisition.
- EXPAREL revenue grew despite ongoing elective-surgery, staffing, supply-chain and inflationary pressures; higher gross vial volume was partly offset by product mix and higher gross-to-net adjustments.
- Profitability declined because of lower gross margin, materially higher R&D and commercial spending, higher amortization, increased interest expense and the ZILRETTA IPR&D impairment.
- Operating cash flow improved, but total cash declined by $481.4 million due largely to debt repayment, investment purchases, capital expenditures and acquisition-related milestone payments.
- Pacira adopted ASU 2020-06, eliminating separate equity accounting for certain convertible-debt conversion features and changing the presentation of convertible debt and diluted EPS.
Guidance, outlook, risks and contingencies
- Management expected 2023 R&D expense to be modestly lower than 2022, with emphasis on ZILRETTA, iovera, PCRX-201 and PCRX-401. The filing did not provide clear quantitative revenue or earnings guidance.
- Pacira submitted an EXPAREL supplemental NDA in January 2023 for femoral nerve blocks in the adductor canal and sciatic nerve blocks in the popliteal fossa; an FDA action date was anticipated in the second half of 2023.
- Planned development activities included ZILRETTA studies in shoulder osteoarthritis and Type 2 diabetes, an iovera spasticity study, and early-stage pMVL programs. PCRX-301 development was discontinued in September 2022 because of insufficient clinical efficacy and formulation issues.
- Potential Flexion contingent-value payments could total up to $372.3 million through 2030, subject to regulatory and commercial milestones. Potential remaining MyoScience milestone payments were up to $43.0 million through December 31, 2023.
- Material legal matters include patent litigation with eVenus concerning proposed generic versions of EXPAREL, a declaratory judgment action involving Research Development Foundation royalty obligations, and MyoScience milestone litigation involving up to $30.0 million plus attorneys’ fees. The filing states that outcomes cannot be predicted.
- Key operating risks include heavy dependence on EXPAREL, concentration among three wholesalers representing 76% of revenue, reimbursement and pricing pressure, competition from lower-cost alternatives and generics, manufacturing concentration and third-party supply reliance, variable-rate debt, patent challenges, clinical and regulatory uncertainty, inflation, supply-chain disruption and elective-surgery volatility.
- The company reported no known material cybersecurity breaches during the preceding three years. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Facts investors should verify
- Whether EXPAREL growth and ZILRETTA adoption offset gross-margin pressure, rising commercial costs and debt-service expense.
- The timing and outcome of the EXPAREL supplemental NDA and the clinical programs supporting ZILRETTA, iovera and PCRX-201.
- The maturity, refinancing or conversion strategy for the $402.5 million 2025 convertible notes and the remaining 2024 notes.
- Progress on EXPAREL capacity expansion and the ZILRETTA manufacturing project, including exposure to Thermo Fisher and other concentrated suppliers.
- The outcome and potential financial impact of eVenus patent litigation, RDF royalty litigation and MyoScience milestone litigation.
- The likelihood and timing of Flexion and MyoScience contingent milestone payments, which could materially affect future cash requirements.
- Whether the $325.9 million of cash and investments, together with operating cash flow, remains sufficient as debt maturities, capital projects and potential milestone obligations approach.