Pacira BioSciences, Inc. — Q2 2023 Form 10-Q Summary
Business context and reporting period
Pacira develops, manufactures and commercializes non-opioid pain-management products. Its primary products are EXPAREL, ZILRETTA and iovera°. The company operates as one reportable segment. This unaudited filing covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $169.5 million | $169.4 million | $329.8 million | $327.4 million |
| Net income | $25.8 million | $19.9 million | $6.2 million | $26.7 million |
| Diluted EPS | $0.51 | $0.40 | $0.13 | $0.55 |
| Operating cash flow | Not separately provided | Not separately provided | $62.6 million | $60.6 million |
- Q2 revenue was essentially flat year over year. EXPAREL sales declined 1% to $135.1 million, while ZILRETTA increased 7% to $29.3 million and iovera° increased 37% to $4.4 million.
- Q2 gross margin was 72%, versus 70% in the prior-year quarter. Operating income was $39.9 million, implying an operating margin of approximately 23.5%; net income margin was approximately 15.2%.
- Six-month gross margin was 71%, versus 74% in 2022. Operating income declined to $36.8 million from $48.6 million, and net income declined to $6.2 million, primarily reflecting a $16.9 million loss on early extinguishment of debt and higher income tax expense.
- Cash and cash equivalents were $86.8 million at June 30, 2023. Short-term available-for-sale investments were $134.0 million, for total cash and short-term investments of approximately $220.8 million. Working capital was $320.4 million.
- Net cash provided by operating activities increased to $62.6 million for the first six months. Investing activities provided $73.5 million, principally from net sales of available-for-sale investments. Financing activities used $153.5 million.
- Total debt carrying value was $551.7 million, consisting primarily of $397.4 million of 0.750% convertible notes due 2025, $145.7 million of Term Loan A debt due 2028 and $8.6 million of convertible notes due 2024.
Material changes versus the prior comparable period
- EXPAREL gross vial volume increased 4.2% in Q2 and 5.2% for the first six months, but higher 340B discounts, strategic partnerships and product mix reduced net revenue growth.
- ZILRETTA growth reflected higher kit volume and pricing, partly offset by increased customer discounting. iovera° growth reflected a 38% increase in Smart Tip volume in both periods.
- Six-month cost of goods sold increased 12%, and gross margin declined three percentage points, partly due to operational challenges at the third-party Swindon, England manufacturing site and lower net selling prices.
- Research and development expense decreased 28% in Q2 and 25% year to date, primarily following completion of EXPAREL lower-extremity nerve-block trials and certain other studies. Product development and manufacturing-capacity expansion costs increased materially.
- On March 31, 2023, Pacira refinanced its Term Loan B with a $150.0 million Term Loan A facility, repaying approximately $287.5 million of Term Loan B principal. The refinancing reduced debt but generated the $16.9 million extinguishment loss. The new loan carried an 8.01% interest rate at June 30.
- Pacira recorded a $17.5 million net acquisition-related gain in Q2, primarily from reducing the estimated probability of Flexion contingent consideration payments. A $0.9 million restructuring charge was also recorded in connection with a headcount reduction.
Guidance, outlook, commentary and risks
- The filing does not provide clear numerical revenue or earnings guidance. Management expects existing cash, investments and product-sale proceeds to fund operating expenses, capital expenditures and debt service for at least the next 12 months.
- The FDA was reviewing an EXPAREL supplemental application for lower-extremity nerve blocks with a November 13, 2023 PDUFA action date. Pacira also planned additional pediatric, stellate-ganglion-block, ZILRETTA shoulder-OA and pipeline studies.
- Management expects continued investment in EXPAREL manufacturing-capacity expansion, product development, clinician training and commercialization. An EXPAREL capacity-expansion supplemental application was expected in the second half of 2023.
- In July 2023, after quarter-end, Pacira made a $25.0 million prepayment on Term Loan A. The loan requires quarterly principal payments and includes maximum senior secured net leverage and minimum fixed-charge coverage covenants; Pacira was in compliance at June 30, 2023.
- Key risks include dependence on EXPAREL and a limited number of wholesalers, manufacturing and supply-chain issues, inflation and rising interest rates, competition and generic entry, regulatory and clinical-development uncertainty, patent litigation, customer discounting and potential milestone payments.
- Three wholesalers represented 77% of revenue and 72% of accounts receivable at June 30, 2023. Potential contingent milestone payments included up to $372.3 million related to Flexion and up to $43.0 million related to MyoScience, subject to achievement of specified milestones.
- Material legal matters include MyoScience milestone litigation, EXPAREL patent litigation involving eVenus and a dispute with the Research Development Foundation over royalty obligations. Outcomes were not predictable at the filing date.
Most important facts for investors to verify
- Whether EXPAREL net sales stabilize despite 340B participation, chargebacks and discounting.
- Progress on the FDA lower-extremity nerve-block application and other planned clinical and regulatory programs.
- Execution and cost of the San Diego capacity expansion and Swindon manufacturing operations.
- Cash generation, variable-rate Term Loan A expense, required amortization and the remaining 2024 and 2025 convertible-note obligations.
- Potential outcomes and financial exposure from the MyoScience, eVenus and RDF proceedings.
- Changes in the estimated probability and timing of Flexion and MyoScience contingent consideration payments.