Pacira Pharmaceuticals, Inc. — Q2 2013 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and six months ended June 30, 2013. Pacira develops, manufactures and commercializes DepoFoam-based pharmaceutical products for hospitals and ambulatory surgery centers. EXPAREL, launched in April 2012, was the primary growth driver; DepoCyt(e) was sold through commercial partners.
Key financial metrics
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $17.1 million | $12.3 million | $28.7 million | $20.1 million |
| Net product sales | $16.3 million | $5.0 million | $27.1 million | $5.4 million |
| EXPAREL sales | $15.2 million | $2.3 million | $25.7 million | $2.3 million |
| Loss from operations | $(12.0) million | $(6.6) million | $(30.7) million | $(17.8) million |
| Net loss | $(14.0) million | $(8.3) million | $(37.2) million | $(20.2) million |
| Net loss per share | $(0.42) | $(0.27) | $(1.13) | $(0.72) |
| Cash used in operations | Not separately provided for the quarter | $(27.1) million | $(37.8) million |
- Calculated gross margin was approximately 40.4% in Q2 and 24.8% for the six-month period, based on total revenue less cost of revenues. Operating margins were approximately (70.0)% and (106.7%), respectively.
- At June 30, 2013, cash and cash equivalents were $8.6 million, restricted cash was $1.0 million and short-term investments were $87.3 million. Management reported working capital of $105.7 million.
- Total assets were $178.4 million and total stockholders’ equity was $59.1 million. Accumulated deficit was $269.7 million.
- Long-term debt, net of discount, was $96.9 million, comprising $120.0 million principal of 3.25% convertible senior notes due 2019, less the accounting discount. The notes’ stated conversion price was approximately $24.82 per share.
Material changes versus the prior comparable period
- Q2 revenue increased 39%, while six-month revenue increased 43%. EXPAREL revenue increased 566% in Q2 and 1,023% for the six-month period.
- Collaborative licensing and development revenue declined 96% in both comparison periods, primarily because 2012 included deferred milestone revenue recognized after termination of the EKR agreement.
- DepoCyt(e) sales declined 60% in Q2 and 53% for the six-month period.
- Research and development expense increased 159% in Q2 and 240% for the six-month period, primarily due to two EXPAREL nerve-block trials and related development activities.
- Selling, general and administrative expense increased 35% in Q2 and 25% for the six-month period, reflecting higher headcount, infrastructure, sales-force and marketing costs.
- Interest expense increased materially because of amortization of the debt discount associated with the convertible notes. The six-month period also included a $3.4 million loss on repayment of the former Oxford credit facility.
- Operating cash use improved by $10.7 million year over year, largely because of increased EXPAREL collections, but investing cash use increased to $61.8 million, including purchases of short-term investments and capital expenditures.
Guidance, outlook, risks and unusual items
- Management expected existing cash, restricted cash, short-term investments and product-sale revenue to fund planned operating expenses, capital expenditures and debt service for at least the next 12 months. The company nevertheless expected substantial additional operating losses and stated that additional financing might be required.
- Pacira was expanding its San Diego manufacturing capacity and anticipated FDA approval of the Suite C facility in 2014. The company expected the expansion to increase EXPAREL production capacity.
- Two pivotal nerve-block trials were underway. The filing states that the intercostal nerve-block trial subsequently failed to meet its primary endpoint in August 2013; the femoral nerve-block study’s final part was ongoing. Management planned an sNDA for the nerve-block indication in early 2014, subject to the trial data and regulatory review.
- Key risks include dependence on the commercial success and market acceptance of EXPAREL, regulatory approval and clinical-trial outcomes, manufacturing scale-up, intellectual-property protection, customer concentration and the need for future financing.
- The three largest customers represented 79% of revenue in both the quarter and six-month period. Four customers represented 91% of accounts receivable at June 30, 2013.
- The company entered into lease amendments extending San Diego facility leases through August 2020 and added warehouse space. Aggregate minimum lease payments were $35.9 million as of June 30, 2013.
- No material litigation, material changes to previously reported risk factors, defaults or material off-balance-sheet arrangements were reported. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether EXPAREL sales growth and account additions continued without excessive wholesaler or customer concentration.
- Actual gross margins as manufacturing capacity utilization changes and Suite C becomes operational.
- Cash burn, short-term investment balances and the timing of any additional equity or debt financing.
- The regulatory and commercial implications of the failed intercostal nerve-block trial and the outcome of the femoral nerve-block program.
- Conversion, refinancing or potential current classification risks associated with the $120.0 million convertible notes.
- Future contingent payments to Skyepharma, lease obligations and other manufacturing-related capital commitments.