Pacira BioSciences, Inc. 2020 Form 10-K Summary
Business context and reporting period
Pacira BioSciences develops and commercializes non-opioid pain management and regenerative health products. Its principal products are EXPAREL, a long-acting bupivacaine formulation, and iovera°, a handheld cryoanalgesia device acquired through the April 2019 MyoScience acquisition. The filing covers the fiscal year ended December 31, 2020, with quarterly data provided for the three months ended December 31, 2020.
EXPAREL remained the core business, representing approximately 96% of total 2020 revenue. The COVID-19 pandemic postponed or suspended elective surgeries and affected sales, clinical trials, customer access and commercial activities, although the company reported no material supply-chain impact.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $429.6 million | $421.0 million | 2% |
| Net product sales | $426.6 million | $418.9 million | 2% |
| EXPAREL sales | $413.3 million | $407.9 million | 1% |
| iovera° sales | $8.8 million | $7.9 million | 12% |
| Income from operations | $46.4 million | $10.5 million | Increase |
| Net income | $145.5 million | $(11.0) million | Improved |
| Diluted EPS | $3.33 | $(0.27) | Improved |
| Operating cash flow | $77.0 million | $70.5 million | Increase |
- Gross margin was 73%, down from 75% in 2019. The decline reflected unplanned downtime at the Thermo Fisher manufacturing suite in Swindon and a planned San Diego manufacturing shutdown for capacity expansion.
- Operating margin was approximately 10.8%, compared with approximately 2.5% in 2019.
- Net margin was approximately 33.9%, but was substantially affected by a $125.4 million income tax benefit, including the release of a $126.6 million valuation allowance on domestic deferred tax assets. The filing text does not provide a comparable underlying or adjusted net margin.
- Research and development expense declined 18% to $59.4 million, while selling, general and administrative expense declined 4% to $193.5 million.
- Cash and cash equivalents, short-term investments and long-term investments totaled $617.1 million at year-end, with working capital of $398.3 million.
- Net cash used in investing activities was $277.6 million, primarily reflecting $238.6 million of net investment purchases and $37.8 million of capital expenditures for manufacturing capacity expansion.
- Net cash provided by financing activities was $222.3 million, primarily from the issuance of $402.5 million of 0.750% convertible notes due 2025, partially offset by the repurchase of $185.0 million principal amount of 2022 notes and related financing costs.
Material changes versus the prior comparable period
- Revenue increased modestly despite COVID-19-related disruption. EXPAREL volume increased 1%, while a 4% increase in gross selling price per unit was partly offset by vial-size mix.
- iovera° revenue increased 12%; the 2019 comparison includes only a partial year following the MyoScience acquisition.
- Operating income improved primarily because of lower research and development, sales and marketing, and acquisition-related expenses. Acquisition-related charges declined to $5.2 million from $25.2 million.
- The company recorded a $125.4 million tax benefit in 2020 versus $0.3 million of tax expense in 2019, primarily because management concluded that additional deferred tax assets were realizable.
- Debt was refinanced and extended: $402.5 million of 2025 convertible notes were issued, while $185.0 million of 2022 notes were repurchased. Gross principal debt was $562.5 million at December 31, 2020, consisting of $160.0 million due in April 2022 and $402.5 million due in August 2025.
- Capital expenditures increased substantially to support EXPAREL manufacturing expansion in San Diego and Swindon.
- For the fourth quarter of 2020, revenue was $131.0 million and net income was $14.5 million, compared with fourth-quarter 2019 revenue of $122.4 million and a net loss of $4.9 million.
Guidance, outlook, commentary, risks and unusual items
Management did not provide a specific quantitative revenue or earnings forecast in the filing. The company expects to expand EXPAREL and iovera° utilization, pursue additional indications, invest in manufacturing capacity and commercial infrastructure, develop its DepoFoam pipeline and evaluate strategic investments and acquisitions.
- The European Commission approved EXPAREL in November 2020 for specified nerve-block and field-block indications. A targeted European launch with iovera° was planned for the second half of 2021.
- An EXPAREL pediatric supplemental application was accepted by the FDA with a March 22, 2021 PDUFA action date. The company also continued the STRIDE lower-extremity nerve-block study and other clinical programs.
- The DePuy Synthes orthopedic co-promotion agreement concluded in January 2021. The company estimated termination-related costs of up to $9.0 million, recorded in 2020 selling, general and administrative expense.
- Remaining potential MyoScience contingent consideration was up to $58.0 million, including a $10.0 million regulatory milestone payable in the second quarter of 2021. The related liability was measured at $28.3 million at year-end.
- Potential Skyepharma milestone payments totaled up to $36.0 million. The company also had a potential additional GeneQuine investment of $4.9 million subject to milestones.
- A Delaware lawsuit involving former MyoScience securityholders included a counterclaim seeking $40.0 million in milestone payments and attorneys’ fees. The company considers the counterclaim without merit, but cannot predict the outcome.
- The Department of Justice and related investigations concerning EXPAREL marketing and promotion were resolved in July 2020 through a $3.5 million global settlement. The company admitted no wrongdoing and denied the allegations.
- Key risks include dependence on EXPAREL, COVID-19 effects on elective procedures, competition and generic or alternative formulations, reimbursement pressure, regulatory and off-label-promotion requirements, manufacturing concentration and capacity execution, third-party suppliers and distributors, product liability, intellectual-property challenges, clinical-trial outcomes, litigation and cybersecurity.
- The three largest wholesalers represented 87% of 2020 revenue, creating significant customer and receivables concentration.
Most important facts for an investor to verify
- Whether elective surgery volumes and EXPAREL demand normalize or are disrupted by renewed COVID-19 restrictions or other healthcare-system pressures.
- The sustainability of revenue growth and gross margin after the 2020 tax benefit and unusual manufacturing items are excluded.
- Progress, regulatory outcomes and commercialization economics for pediatric, lower-extremity nerve-block and European EXPAREL opportunities.
- Execution, cost and regulatory approval status of San Diego and Thermo Fisher manufacturing expansions.
- Cash requirements and refinancing or settlement capacity for the $160.0 million 2022 notes, $402.5 million 2025 notes and contingent milestone obligations.
- The outcome and potential financial exposure from the MyoScience milestone litigation and remaining contingent consideration.
- Concentration among the three major wholesalers and the adequacy of revenue deductions, rebates, chargebacks and returns reserves.
- The filing’s audited financial statements and the critical audit matter concerning fair-value estimates for MyoScience contingent consideration.