Pacira BioSciences, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Pacira BioSciences develops and commercializes non-opioid pain-management products. Its portfolio includes EXPAREL, ZILRETTA, and iovera°. The unaudited report covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. ZILRETTA was included following the November 2021 acquisition of Flexion Therapeutics.
Financial performance and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $158.0 million | $119.0 million | Up 33% |
| Net product sales | $157.4 million | $118.7 million | Up 33% |
| Gross margin | 77% | 74% | Up 3 percentage points |
| Income from operations | $17.4 million | $19.4 million | Down 11% |
| Operating margin | 11.0% | 16.3% | Down 5.3 percentage points |
| Net income | $6.8 million | $10.4 million | Down 34% |
| Diluted earnings per share | $0.15 | $0.23 | Down $0.08 |
| Net cash provided by operating activities | $30.8 million | $12.1 million | Up $18.7 million |
EXPAREL sales increased 13% to $129.2 million, driven primarily by an 11% increase in gross vial volume and a 4% increase in gross selling price per unit. ZILRETTA contributed $23.6 million of sales. iovera° sales declined 7% to $3.0 million, while veterinary bupivacaine sales increased 96% to $1.6 million, partly due to order timing.
Operating expenses increased to $140.6 million from $99.6 million. Research and development increased 36% to $21.6 million, selling, general and administrative expense increased 32% to $64.3 million, and amortization of acquired intangible assets increased to $14.3 million from $2.0 million due primarily to the Flexion acquisition. Interest expense increased 47% to $10.2 million following the December 2021 term loan.
Liquidity, cash flow, and debt
- Cash and cash equivalents were $226.8 million at March 31, 2022, compared with $585.6 million at December 31, 2021.
- Short-term available-for-sale investments were $225.4 million, resulting in cash and short-term investments of approximately $452.2 million.
- Working capital was $361.9 million, and total stockholders’ equity was $709.6 million.
- Operating cash flow was $30.8 million. Investing cash flow was negative $208.0 million, including $155.6 million of investment purchases, a $32.0 million milestone payment, $12.8 million of strategic investments, and $7.7 million of capital expenditures.
- Financing cash flow was negative $181.6 million, primarily reflecting repayment of $192.6 million of Flexion convertible notes.
- Debt carrying value was $923.4 million at March 31, 2022, consisting principally of the $360.5 million net term loan, $394.3 million of 2025 convertible notes, and $160.0 million of 2022 convertible notes.
- The $375.0 million term loan matures in December 2026, bears interest at 7.75% at quarter-end, requires quarterly principal repayments beginning June 30, 2022, and includes a minimum liquidity covenant of $150.0 million. The Company was in compliance with its financial covenants.
- The $160.0 million 2022 convertible notes matured on April 1, 2022. Pacira settled the principal and a $4.8 million conversion premium through a $156.9 million cash payment and issuance of 101,521 common shares.
Material changes versus the prior comparable period
- Revenue growth reflected the addition of ZILRETTA and continued EXPAREL demand, but profitability declined because commercial, research, acquisition-related, amortization, and interest costs increased faster than revenue.
- Gross margin improved from 74% to 77%, principally because of lower EXPAREL production costs and improved manufacturing efficiency, partly offset by purchase-accounting effects for ZILRETTA.
- Sales and marketing spending increased 42% due to expanded commercial resources for ZILRETTA and iovera°, European commercialization, and continued clinician education.
- Pacira adopted ASU 2020-06 effective January 1, 2022. Convertible debt is now recorded wholly as debt, increasing reported net debt and changing diluted EPS accounting.
- The Company made a $32.0 million milestone payment related to its 2007 acquisition and repurchased $192.6 million of Flexion notes during the quarter.
Guidance, outlook, commentary, and risks
The filing does not provide clear quantitative revenue or earnings guidance. Management expects to continue expanding EXPAREL, ZILRETTA, and iovera°, investing in sales and marketing, increasing manufacturing capacity, advancing clinical and regulatory programs, and developing additional pipeline products. Management expects the Houston training facility to open before the end of 2022 and expects to initiate a Phase 2 study for low-dose bupivacaine-pMVL in late 2022.
Management stated that existing cash, investments, and product-sale receipts are expected to fund operating expenses, capital expenditures, debt service, and potential note conversions for at least the next 12 months. However, future capital needs may be affected by Flexion integration costs, potential CVR payments of up to $380.2 million, potential MyoScience milestone payments of up to $43.0 million, manufacturing expansion, clinical trials, litigation, and strategic investments. The Company has no committed external financing sources.
- COVID-19-related staffing shortages, elective-surgery disruptions, procedure backlogs, and supply-chain delays could reduce demand or constrain operations.
- Revenue is concentrated among a small number of wholesalers: the three largest represented 76% of Q1 revenue, and three wholesalers represented 72% of accounts receivable at March 31, 2022.
- eVenus has challenged Pacira patents covering generic EXPAREL products. Pacira filed infringement actions, triggering 30-month stays of FDA approval; outcomes cannot currently be predicted.
- Pacira is litigating with Fortis Advisors regarding up to $30.0 million of remaining MyoScience milestones plus attorneys’ fees.
- Pacira is disputing whether royalties to the Research Development Foundation extend through 2041 and is paying royalties under protest while the litigation is pending.
- Variable-rate term-loan exposure creates interest-rate risk; management estimated that a 100-basis-point increase would increase quarterly interest expense by approximately $0.9 million.
Important facts for investors to verify
- Whether EXPAREL growth and ZILRETTA integration can offset higher selling, research, amortization, and interest expenses.
- The cash impact of the April 1, 2022 repayment of the 2022 notes and the Company’s liquidity relative to the $150.0 million term-loan covenant.
- Progress and economics of the EXPAREL manufacturing expansion and ZILRETTA capacity expansion.
- Outcomes and potential financial exposure from the eVenus, MyoScience milestone, and Research Development Foundation matters.
- Timing and probability of Flexion CVR milestones and potential payments, which could materially increase future cash requirements.
- Impact of elective-surgery volumes, COVID-19 disruptions, reimbursement changes, product-return and rebate estimates, and wholesaler concentration on revenue and cash flow.