Pacira Pharmaceuticals, Inc. — FY2012 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2012. Pacira is a specialty pharmaceutical company developing, manufacturing and commercializing products based on its DepoFoam extended-release drug-delivery technology for hospitals and ambulatory surgery centers. Its lead product, EXPAREL, was FDA-approved in October 2011 and commercially launched in the United States in April 2012. The company also manufactures DepoCyt(e) for commercial partners.
- EXPAREL was marketed for postsurgical analgesia by infiltration; nerve-block indications remained in development.
- At December 31, 2012, Pacira had approximately 819 EXPAREL accounts, access to 75% of its top 100 target hospitals and 53% of its top 500 target hospitals.
- The company employed 156 people, including 154 full-time employees.
Financial performance and liquidity
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Total revenue | $39.1 million | $15.7 million | 149% |
| Net product sales | $18.2 million | $6.9 million | 164% |
| EXPAREL sales | $14.6 million | None | New product |
| Collaborative licensing and development revenue | $18.4 million | $5.1 million | 262% |
| Royalty revenue | $2.5 million | $3.7 million | (33%) |
| Cost of revenues | $32.1 million | $16.7 million | 92% |
| Loss from operations | $(49.3) million | $(39.1) million | Loss widened |
| Net loss | $(52.3) million | $(43.3) million | Loss widened |
| Basic and diluted loss per share | $(1.72) | $(2.64) | Improved per share due to share issuance |
Derived margins were approximately 17.8% gross margin, (126.1%) operating margin and (133.8%) net margin. The filing does not present these margins explicitly.
- Research and development expense declined to $9.9 million from $14.9 million, principally because EXPAREL manufacturing-development costs shifted to cost of goods sold after approval.
- Selling, general and administrative expense increased to $46.3 million from $20.2 million, including $30.3 million of sales and marketing expense related to the EXPAREL launch.
- Cost of goods sold included approximately $3.2 million for non-routine EXPAREL manufacturing shutdowns and $1.3 million for DepoCyt(e) remediation, inventory replacement and related reserves.
- Cash used in operating activities was $70.1 million, compared with $31.0 million in 2011. Capital expenditures were $18.3 million, primarily for EXPAREL manufacturing capacity.
- At December 31, 2012, cash and cash equivalents were $10.1 million, restricted cash was $1.5 million and short-term investments were $30.9 million. Management reported total cash, restricted cash and short-term investments of $42.6 million and working capital of $46.8 million.
- Reported debt consisted of $27.5 million principal under the Oxford facility, presented net of discount as $25.2 million, plus a $1.7 million royalty interest obligation. Total consolidated indebtedness was reported as $27.5 million excluding trade payables and related items.
Material changes versus the prior comparable period
- EXPAREL generated its first full-year commercial revenue, but commercialization substantially increased sales, marketing, manufacturing and cash requirements.
- Collaborative licensing revenue increased primarily because Pacira recognized deferred revenue following the termination of agreements with EKR, Novo Nordisk and Flynn Pharma; these increases may not be recurring.
- DepoCyt(e) product sales fell 48% to $3.5 million and royalty revenue fell 33%, principally because of the European selective recall and manufacturing interruption.
- Pacira completed a $62.9 million net common-stock offering in April 2012.
- The company entered into a $27.5 million Oxford credit facility in May 2012, using the proceeds to repay the Hercules facility, and recorded a $1.1 million loss on debt extinguishment.
- In December 2012, Pacira licensed its veterinary bupivacaine liposome product to Aratana Therapeutics for a $1.0 million upfront payment and potential milestone payments of up to $42.5 million, plus royalties.
- EKR terminated the DepoDur agreement, the DepoDur NDA was withdrawn and Pacira does not expect future DepoDur sales. Novo also terminated its DepoFoam development agreement.
Guidance, outlook, commentary and risks
- Management expected continued substantial operating losses while commercializing EXPAREL, expanding manufacturing capacity and funding clinical development.
- Pacira expected to complete two pivotal nerve-block studies in 2013 and submit a supplemental NDA for nerve-block administration in 2014. FDA-required pediatric studies would continue over several years.
- On January 23, 2013, after year-end, Pacira issued $120.0 million of 3.25% convertible senior notes due 2019, receiving approximately $115.3 million in net proceeds. It used $30.1 million to repay the Oxford facility in full.
- Management stated that available cash, product revenue and the January 2013 financing were expected to fund operations, capital expenditures and debt service for at least the next 12 months, while acknowledging that additional financing might be required.
- The MHRA identified critical and major manufacturing deficiencies at the DepoCyt(e) facility in July 2012. Pacira temporarily stopped production, recorded related charges and completed remediation; the MHRA cleared the company to resume European production in January 2013. European product availability was not expected until the second quarter of 2013.
- Key risks include dependence on EXPAREL market acceptance, formulary approvals, reimbursement, manufacturing scale-up, regulatory compliance, product liability, patent challenges, competition, reliance on third-party distribution and suppliers, continued losses and potential future dilution or debt financing.
- The company’s first EXPAREL composition patent was scheduled to expire in November 2013, although other patents, applications, trade secrets and regulatory exclusivity provided additional protection. FDA-granted three-year marketing exclusivity was scheduled to expire October 28, 2014.
- No material pending litigation was reported. Management and the auditor concluded that internal control over financial reporting was effective as of December 31, 2012, and the auditor issued unqualified opinions on the financial statements and controls.
Important facts for investors to verify
- Whether EXPAREL sales growth and hospital reorders are sufficient to offset substantially higher commercialization and manufacturing costs.
- The recurring versus non-recurring composition of the $18.4 million of collaborative licensing revenue.
- Current EXPAREL gross margin, manufacturing utilization, capacity-expansion spending and any continuing production inefficiencies.
- DepoCyt(e) European supply restoration, recall-related costs, sales recovery and compliance with MHRA requirements.
- Cash burn, working-capital needs and the effect of the January 2013 convertible notes, including future interest, conversion and dilution exposure.
- Progress, cost and regulatory outcome of the nerve-block and pediatric clinical programs.
- Patent durability, generic or competing long-acting bupivacaine products and the practical impact of EXPAREL’s regulatory exclusivity expiration.