Pacira BioSciences, Inc. — 2019 Q2 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2019; filed August 8, 2019. Financial statements are unaudited and prepared under U.S. GAAP.
Business Context
Pacira develops and commercializes non-opioid pain-management products. EXPAREL remains the primary product. On April 9, 2019, Pacira acquired MyoScience, adding the iovera° cryoanalgesia system and broadening its commercial portfolio. The company operates as one reportable segment.
Key Financial Metrics
| Metric | Q2 2019 | Q2 2018 | Six Months 2019 | Six Months 2018 |
|---|---|---|---|---|
| Total revenue | $102.6 million | $84.1 million | $193.9 million | $158.7 million |
| Net product sales | $101.8 million | $80.7 million | $192.7 million | $155.0 million |
| EXPAREL sales | $98.9 million | $80.4 million | $189.5 million | $154.5 million |
| iovera° sales | $2.0 million | — | $2.0 million | — |
| Gross margin | 75% | 75% | 73% | 72% |
| Operating income | $5.3 million | $6.5 million | $6.4 million | $(0.4) million |
| Net income (loss) | $2.7 million | $2.6 million | $(0.04) million | $(8.1) million |
| Diluted EPS | $0.06 | $0.06 | $(0.00) | $(0.20) |
| Operating cash flow | Not separately provided | Not separately provided | $26.3 million | $11.0 million |
Q2 operating margin was approximately 5.1%, compared with approximately 7.8% in the prior-year quarter. Six-month operating margin was approximately 3.3%, versus negative 0.2% in the prior-year period.
Liquidity, Debt and Balance Sheet
- Cash and cash equivalents were $59.7 million at June 30, 2019, compared with $132.5 million at December 31, 2018.
- Short- and long-term investments totaled $257.9 million, resulting in cash and investments of approximately $317.6 million.
- Working capital was $311.6 million; total assets were $787.8 million and stockholders’ equity was $341.7 million.
- The company had $345.0 million principal amount of 2.375% convertible senior notes due April 2022, carried at $298.2 million net of discount and issuance costs. The notes had an estimated fair value of $354.3 million.
- The company repaid the remaining $0.3 million principal of its 2019 convertible notes and paid a $0.2 million conversion premium during the first half of 2019.
- Operating lease liabilities totaled $45.2 million at June 30, 2019. Two additional leases had future commitments of $53.3 million but had not commenced.
Material Changes Versus the Prior Comparable Period
- Total revenue increased 22% in both the quarter and six-month period. EXPAREL revenue increased 23% in both periods, primarily from higher unit demand and continued adoption in multimodal and enhanced-recovery protocols.
- iovera° contributed $2.0 million of revenue from the April 10 acquisition date through June 30, 2019, but CryoTech recorded a $2.5 million net loss during that period.
- Research and development expense increased 46% in Q2 and 21% year to date, driven by pediatric and Phase 4 trials, manufacturing scale-up, regulatory activities and product development.
- Selling, general and administrative expense increased 11% in Q2 and 9% year to date, primarily from sales-force expansion, marketing, commissions and iovera° commercialization.
- Acquisition-related charges were $3.4 million in Q2 and $4.6 million year to date. Acquired intangible-asset amortization was $1.8 million in Q2 and year to date.
- Operating cash flow improved to $26.3 million from $11.0 million, but investing cash flow was negative $103.3 million, largely because of the $118.7 million net cash cost of the MyoScience acquisition.
- Goodwill increased to $100.5 million and intangible assets to $108.3 million following the MyoScience acquisition.
Outlook, Commentary and Risks
- Management stated that existing cash, investments and expected product-sale cash flows were sufficient to fund operations, capital expenditures, debt service and potential 2022 note principal payments through at least August 8, 2020. The filing provides no formal revenue or earnings guidance.
- Management expects continued spending on EXPAREL and iovera° commercialization, clinical programs, regulatory activities, manufacturing capacity and potential business-development opportunities.
- Pacira was pursuing international expansion for EXPAREL, including European regulatory review, a planned Canadian submission and a potential China regulatory path with Nuance.
- Potential contingent payments to MyoScience security holders could total up to $100.0 million through 2023, with up to $25.0 million potentially payable in common stock. Potential remaining Skyepharma milestones could total $36.0 million.
- The company relies heavily on EXPAREL and a limited number of products, manufacturing sites, suppliers and wholesalers. Three wholesalers represented 87% of Q2 revenue and 89% of year-to-date revenue; three wholesalers also represented 88% of accounts receivable at June 30, 2019.
- A U.S. Department of Justice inquiry into EXPAREL marketing and promotional practices remained outstanding. The company could not predict its timing, outcome or potential impact.
- Key risks include integrating MyoScience, realizing expected iovera° synergies, competition, regulatory and clinical execution, manufacturing expansion, intellectual-property protection, product liability and potential need for additional financing.
Investor Verification Checklist
- Verify the sustainability of EXPAREL growth and the commercial contribution and gross-margin profile of iovera°.
- Review the final purchase-price allocation for MyoScience, including acquired intangible values, goodwill and contingent consideration assumptions.
- Assess liquidity relative to the $345.0 million 2022 note principal, contingent milestone payments, lease obligations and planned capital expenditures.
- Monitor the DOJ inquiry, regulatory submissions, clinical-trial results and manufacturing expansion milestones.
- Reconcile product-sales allowances, which reduced gross product sales by $11.9 million, or 5.8%, in the first half of 2019, compared with 5.4% in the prior-year period.