Pacira BioSciences, Inc. — Q1 2024 Form 10-Q Summary
Reporting period: Three months ended March 31, 2024. The interim financial statements are unaudited and prepared under U.S. GAAP. Pacira operates as one reportable segment focused on non-opioid pain management and regenerative health solutions. Its principal products are EXPAREL, ZILRETTA and iovera°. A new chief executive officer was appointed effective January 2, 2024.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $167.1 million | $160.3 million | 4% |
| Net product sales | $165.8 million | $159.4 million | 4% |
| Gross margin | 72% | 69% | Up 3 points |
| Income from operations | $13.2 million | $(3.1) million | Improved |
| Net income (loss) | $9.0 million | $(19.5) million | Improved |
| Diluted earnings (loss) per share | $0.19 | $(0.43) | Improved |
| Cash flow from operating activities | $49.1 million | $19.1 million | Up $30.0 million |
- Product revenue: EXPAREL sales were $132.4 million, up 2%; ZILRETTA sales were $25.8 million, up 6%; iovera° sales were $5.0 million, up 26%; and bupivacaine liposome injectable suspension sales were $2.5 million, up more than 100%. Royalty revenue increased 42% to $1.3 million.
- Margins and expenses: Cost of goods sold declined 3% to $47.4 million, contributing to the 72% gross margin. Research and development expense increased 6% to $18.2 million, while selling, general and administrative expense increased 2% to $72.0 million. Amortization of acquired intangible assets was $14.3 million.
- Unusual operating items: Operating expense included $5.5 million of restructuring charges, partially offset by a $3.8 million gain from remeasurement of Flexion contingent consideration. The comparable 2023 period included an $11.6 million contingent consideration charge.
- Other income and taxes: Net other income was $0.4 million compared with $23.4 million of net other expense in Q1 2023, which included a $16.9 million loss on early debt extinguishment. Interest expense fell to $3.3 million from $9.6 million. Income tax expense was $4.7 million, reflecting a 34% effective tax rate.
- Liquidity: Cash and cash equivalents were $184.1 million and available-for-sale investments were $141.8 million at March 31, 2024, totaling approximately $325.9 million. Working capital was $449.7 million. Total assets were $1.58 billion and accumulated deficit was $97.8 million.
- Debt: Debt carrying value was $520.3 million, consisting primarily of $399.2 million of 0.750% convertible notes due August 2025 and $112.5 million of Term Loan A debt due March 2028. Term Loan A borrowings carried an interest rate of 8.41% at quarter-end. The $8.6 million of 3.375% convertible notes due May 2024 was repaid at maturity on May 1, 2024.
- Cash flows: Investing activities used $15.5 million, including net purchases of investments and $2.8 million of capital expenditures. Financing activities used $2.8 million for a voluntary Term Loan A prepayment. Cash increased $30.8 million to $184.1 million during the quarter.
Material changes versus the prior comparable period
- Revenue increased 4%, driven by growth across all principal products, with the strongest growth in iovera° and veterinary-related bupivacaine sales.
- EXPAREL gross vial volume increased 3%, but product mix and higher sales-related allowances limited net revenue growth to 2%. Sales-related allowances increased to 17.1% of gross product sales from 16.2%, primarily due to higher chargeback-related allowances.
- Gross margin improved from 69% to 72%, primarily due to lower EXPAREL product costs and lower royalty expense, partly offset by higher inventory reserves.
- The company returned to operating and net profitability, compared with operating and net losses in Q1 2023.
- Operating cash generation increased substantially, partly because Q1 2023 included a $13.0 million licensing termination-fee payment and higher interest payments.
- Management initiated a restructuring plan in February 2024, including changes to the executive team, reallocating resources from certain ex-U.S. and early-stage programs toward U.S. commercial activities, and focusing on anticipated Medicare reimbursement changes.
- In February 2024, the FDA approved the supplemental application for Pacira’s 200-liter EXPAREL manufacturing suite in San Diego. The company expects commercial production from the suite later in 2024, which could improve product costs and margins over time.
Guidance, outlook, commentary and risks
- Management stated that existing cash, investments and product-sale cash flows are expected to fund operating expenses, capital expenditures, interest and principal payments for at least the next 12 months. No specific revenue or earnings guidance was provided in the filing text.
- Management expects increased investment during the remainder of 2024 in sales, marketing, market access, reimbursement and strategic national-account initiatives, including preparation for separate Medicare reimbursement for EXPAREL in outpatient settings beginning in January 2025.
- Clinical and regulatory activity includes a ZILRETTA Phase 3 shoulder osteoarthritis study, an EXPAREL pediatric study, an iovera° spasticity trial, and ongoing development of PCRX-201. PCRX-201 received FDA RMAT designation in February 2024.
- A new share repurchase program authorized purchases of up to $150.0 million of common stock beginning May 7, 2024, subject to management discretion and available resources.
- Key risks include reliance on EXPAREL and a limited product portfolio, concentration among wholesalers, manufacturing and supply-chain dependence, competition and generic entry, regulatory and clinical uncertainty, litigation, patent protection, inflation and interest-rate exposure, cybersecurity, and dependence on key personnel.
- Three largest wholesalers accounted for 79% of revenue in both Q1 2024 and Q1 2023. Three wholesalers accounted for 74% of accounts receivable at March 31, 2024.
- Material legal matters include MyoScience milestone litigation, eVenus litigation involving proposed generic EXPAREL products, and a Research Development Foundation royalty dispute. The company stated that it cannot predict the outcomes of the pending matters.
- The eVenus litigation could affect generic competition timing; automatic FDA approval stays were scheduled to expire July 1, 2024, while trial decisions were pending at the filing date.
- The company may owe contingent Flexion-related milestone payments of up to $372.3 million if specified milestones are achieved, although the filing states that the probability of payment for the remaining regulatory milestone was 0% as of March 31, 2024.
Investor verification checklist
- Verify the pace of EXPAREL volume growth, the effect of product mix and chargebacks, and the timing and cost benefits of the 200-liter manufacturing suite.
- Monitor execution of the restructuring plan, incremental commercial spending and the expected January 2025 Medicare reimbursement change.
- Assess the company’s ability to refinance or repay the $402.5 million principal amount of convertible notes due August 2025 while maintaining required liquidity and credit-agreement compliance.
- Track developments in the eVenus generic EXPAREL litigation, the MyoScience milestone case and the Research Development Foundation royalty dispute.
- Evaluate clinical, regulatory and commercialization progress for PCRX-201, ZILRETTA’s shoulder indication, pediatric EXPAREL programs and iovera° initiatives.
- Confirm the effect of the $150.0 million share repurchase authorization on liquidity, leverage and future share count.