Pacira Pharmaceuticals, Inc. (now Pacira BioSciences) — 2011 Q2 Form 10-Q
Reporting period: Three and six months ended June 30, 2011; filed August 11, 2011. The interim financial statements are unaudited. Pacira is an emerging specialty pharmaceutical company developing and manufacturing products based on its DepoFoam extended-release technology. Its lead candidate, EXPAREL, was under FDA review with a revised PDUFA target date of October 28, 2011.
Financial performance and position
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Total revenue | $3.636 million | $3.055 million | $7.500 million | $7.839 million |
| Gross profit | $0.521 million | $0.206 million | $0.719 million | $1.244 million |
| Gross margin | 14.3% | 6.7% | 9.6% | 15.9% |
| Operating loss | $(8.531) million | $(5.628) million | $(15.651) million | $(10.248) million |
| Net loss | $(8.763) million | $(6.813) million | $(18.537) million | $(12.206) million |
| Net loss per share | $(0.51) | $(11.86) | $(1.36) | $(21.25) |
| Cash flow from operations | Not separately provided | Not separately provided | $(14.910) million | $(12.127) million |
- Q2 operating margin was approximately negative 234.6%, compared with negative 184.2% in the prior-year quarter. Six-month operating margin was approximately negative 208.7%, compared with negative 130.7%.
- At June 30, 2011, cash and cash equivalents were $27.450 million, short-term investments were $19.755 million, and restricted cash was $2.069 million. Management reported $47.2 million of cash and short-term investments and $36.1 million of working capital.
- Total assets were $87.092 million and stockholders’ equity was $22.935 million, compared with a $48.383 million deficit at December 31, 2010.
- Total debt and financing obligations were $28.906 million, including $25.227 million of current and long-term Hercules debt and $3.679 million of royalty interest obligations. The Hercules facility had $26.3 million of outstanding principal.
Material changes versus the prior comparable periods
- Q2 revenue increased 19% to $3.636 million, primarily from a $0.5 million increase in collaborative licensing and development revenue and a $0.1 million increase in royalties. Six-month revenue decreased 4% because supply revenue fell $1.2 million, partly offset by a $0.7 million increase in collaborative revenue.
- DepoCyt(e) and DepoDur revenue increased 5% in Q2 but decreased 17% for the six-month period. DepoDur supply revenue was zero in Q2 and the first six months of 2011.
- Cost of revenues increased 9% in Q2 and 3% for the six-month period. Excess manufacturing capacity costs increased to $1.9 million in Q2 and $4.1 million for six months, from $1.3 million and $2.9 million, respectively.
- Research and development expense decreased 5% in Q2 and 15% for six months, primarily because pivotal EXPAREL trials were being closed out and NDA preparation costs declined. EXPAREL represented 99% of six-month research and development expense.
- Selling, general and administrative expense increased 277% in Q2 and 276% for six months, driven by commercial hiring, preparation for the potential EXPAREL launch, public-company costs, and $1.2 million of first-half stock-based compensation.
- The February 2011 initial public offering generated $42.0 million of gross proceeds and approximately $37.1 million of net proceeds. Preferred stock and approximately $51.2 million of notes were converted into common stock, materially reducing liabilities and eliminating the related-party debt balance.
- Investing activities used $21.790 million in the first half, including $19.755 million invested in short-term commercial paper and corporate bonds and $2.035 million for fixed assets. Financing activities provided $38.017 million, primarily from the IPO.
Guidance, outlook, risks and unusual items
- Management expected no EXPAREL sales until at least the fourth quarter of 2011 and planned to hire most of its sales force only if FDA approval was obtained.
- Management stated that existing cash resources and expected product revenue would fund operations, capital expenditures and debt service through the end of 2011 if EXPAREL were approved. If approval were not received, management believed cash would fund the company beyond the next 12 months, but cautioned that additional financing might still be required.
- The company had incurred losses and negative operating cash flow since inception, with an accumulated deficit of $155.448 million at June 30, 2011. Management stated that longer-term continuation depended on improved profitability, cash flow and additional financing.
- The Hercules interest-only period was extended through November 30, 2011. Principal payments were expected to total $0.7 million in the second half of 2011, $8.6 million in 2012, $9.8 million in 2013 and $7.2 million in 2014.
- Pacira was highly dependent on commercial and distribution partners. Three customers represented 84% of Q2 revenue, and two customers represented 98% of trade accounts receivable at June 30, 2011.
- Material risks included FDA approval and labeling uncertainty for EXPAREL, possible additional clinical requirements, commercialization costs, manufacturing capacity costs, dependence on partners, foreign-exchange exposure, intellectual-property risks and the need for future capital. The filing reported no material litigation and no material changes to the risk factors in the 2010 Form 10-K.
- The Novo Nordisk agreement provided a $1.5 million upfront fee, single-digit royalties, up to $24 million of development milestones and up to $20 million of sales milestones, subject to specified conditions.
Investor verification points
- Verify the FDA’s October 28, 2011 PDUFA outcome, EXPAREL launch timing and subsequent regulatory requirements.
- Assess whether EXPAREL generated the expected revenue and whether commercialization spending translated into sustainable sales.
- Monitor operating cash burn, remaining cash and investments, and the company’s ability to meet Hercules principal payments without additional financing.
- Review customer concentration, partner orders and the sustainability of DepoCyt(e), DepoDur and collaborative licensing revenue.
- Reconcile reported debt, royalty obligations and any potential repurchase obligations under the Paul Capital royalty agreement.
- Evaluate dilution from the IPO, converted notes, preferred stock conversion and outstanding stock options and warrants.