PACIRA BIOSCIENCES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States of America (GAAP) and in accordance with the rules and regulations of theUnited States Securities and Exchange Commission , orSEC . This Quarterly Report on Form 10-Q and certain other communications made by us contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995, including, without limitation, statements related to: the Flexion Acquisition (as defined below) and the costs and benefits thereof, our growth and future operating results and trends, our strategy, plans, objectives, expectations (financial or otherwise) and intentions, future financial results and growth potential, anticipated product portfolio, development programs, strategic alliances, patent terms and intellectual property. For this purpose, any statement that is not a statement of historical fact should be considered a forward-looking statement. We often use the words "believe," "anticipate," "plan," "estimate," "expect," "intend," "may," "will," "would," "could," "can" and similar expressions to help identify forward-looking statements. We cannot assure you that our estimates, assumptions and expectations will prove to have been correct. Actual results may differ materially from these indicated by such forward-looking statements as a result of various important factors, including risks relating to, among others: risks associated with acquisitions, such as the risk that the businesses will not be integrated successfully, that such integration may be more difficult, time-consuming or costly than expected or that the expected benefits of the transaction will not occur; the possibility that if we do not achieve the perceived benefits of the Flexion Acquisition as rapidly or to the extent anticipated by financial analysts or investors, the market price of our shares could decline; the impact of the COVID-19 pandemic on elective surgeries, our manufacturing and supply chain, global andUnited States , orU.S. , economic conditions, and our business, including our revenues, financial condition and results of operations; the success of our sales and manufacturing efforts in support of the commercialization of EXPAREL® (bupivacaine liposome injectable suspension), ZILRETTA® (triamcinolone acetonide extended-release injectable suspension) and iovera°® and the rate and degree of market acceptance of EXPAREL, ZILRETTA and iovera°; the size and growth of the potential markets for EXPAREL, ZILRETTA and iovera° and our ability to serve those markets; our plans to expand the use of EXPAREL, ZILRETTA and iovera° to additional indications and opportunities, and the timing and success of any related clinical trials for EXPAREL, ZILRETTA and iovera°; the commercial success of EXPAREL, ZILRETTA and iovera°; the related timing and success ofUnited States Food and Drug Administration , or FDA, supplemental New Drug Applications, or sNDAs, and premarket notification 510(k)s; the related timing and success ofEuropean Medicines Agency , or EMA, Marketing Authorization Applications, or MAA; our plans to evaluate, develop and pursue additional product candidates utilizing our proprietary multivesicular liposome, or pMVL, drug delivery technology; the approval of the commercialization of our products in other jurisdictions; clinical trials in support of an existing or potential pMVL-based product; our commercialization and marketing capabilities, our ability to successfully construct an additional EXPAREL manufacturing suite inSan Diego, California ; our ability to successfully complete a ZILRETTA capacity expansion project inSwindon, England ; the outcome of any litigation; the ability to successfully integrate Flexion or any future acquisitions into our existing business; the recoverability of our deferred tax assets; and assumptions associated with contingent consideration payments. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements, and as such we anticipate that subsequent events and developments will cause our views to change. Except as required by applicable law, we undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and readers should not rely on the forward-looking statements as representing our views as of any date subsequent to the date of the filing of this Quarterly Report on Form 10-Q. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements. These factors include items mentioned herein and the matters discussed and referenced in Part I-Item 1A. "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2021 and in other reports as filed with theSEC .
Unless the context requires otherwise, references to "Pacira," "we," the
"Company," "us" and "our" in this Quarterly Report on Form 10-Q refer to
Pacira BioSciences, Inc. | Q3 2022 Form 10-Q | Page 32 -------------------------------------------------------------------------------- Table of Contents Overview Pacira is the industry leader in our commitment to non-opioid pain management and providing a non-opioid option to as many patients as possible to redefine the role of opioids as rescue therapy only. We are also developing innovative interventions to address debilitating conditions involving the sympathetic nervous system, such as cardiac electrical storm, chronic pain and spasticity. Our long-acting, local analgesic EXPAREL® (bupivacaine liposome injectable suspension) was commercially launched inApril 2012 . EXPAREL utilizes our unique pMVL drug delivery technology that encapsulates drugs without altering their molecular structure and releases them over a desired period of time. In theU.S. , EXPAREL is the only opioid-free, long-acting local and regional analgesic approved for infiltration, field blocks and interscalene brachial plexus nerve block to produce local or regional postsurgical analgesia. EXPAREL is also approved for infiltration in pediatric patients aged six years and older in theU.S. In theEuropean Union , or E.U., and theUnited Kingdom , orU.K. , EXPAREL is approved as a brachial plexus block or femoral nerve block for treatment of post-operative pain in adults, and as a field block for treatment of somatic post-operative pain from small- to medium-sized surgical wounds in adults. Since its initial approval in 2011, more than 11 million patients have been treated with EXPAREL. We drop-ship EXPAREL directly to end-users based on orders placed to wholesalers or directly to us, and there is no product held by wholesalers. With the acquisition ofFlexion Therapeutics, Inc. ("Flexion") inNovember 2021 (the "Flexion Acquisition"), we acquired ZILRETTA® (triamcinolone acetonide extended-release injectable suspension), the first and only extended-release, intra-articular therapy that can provide major relief for osteoarthritis, or OA, knee pain for three months and has the potential to become an alternative to hyaluronic acid, or HA, and platelet rich plasma, or PRP, injections or other early intervention treatments. With the acquisition ofMyoScience, Inc. (the "MyoScience Acquisition") inApril 2019 , we acquired iovera°®, a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature to targeted nerves, which we sell directly to end users. EXPAREL, ZILRETTA and the iovera° system are highly complementary products as long-acting, non-opioid therapies that alleviate pain. We expect to continue to pursue the expanded use of EXPAREL, ZILRETTA and iovera° in additional procedures; progress our earlier-stage product candidate pipeline; advance regulatory activities for EXPAREL, ZILRETTA, iovera° and other product candidates; invest in sales and marketing resources for EXPAREL, ZILRETTA and iovera°; expand and enhance our manufacturing capacity for EXPAREL, ZILRETTA and iovera°; invest in products, businesses and technologies; and support legal matters.
Flexion Acquisition
InNovember 2021 , we completed the Flexion Acquisition pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), under which Flexion became our wholly owned subsidiary and added ZILRETTA, a non-opioid corticosteroid that employs a proprietary microsphere technology to provide extended pain relief, to our commercial offering. The addition of ZILRETTA to our innovative non-opioid product portfolio directly aligns with our mission to provide an opioid alternative to as many patients as possible and address medical needs along the neural pain pathway. The total consideration of$578.8 million included an initial payment of$428.3 million which represented$8.50 in cash per share of Flexion common stock,$20.2 million paid to settle restricted stock units and in-the-money stock options, an$85.1 million cash payment to repay Flexion debt that was not assumed by us and$45.2 million in contingent consideration representing the fair value of contingent value rights, or CVRs, that were issued in conjunction with the Flexion Acquisition. The Merger Agreement provided for one non-tradeable CVR per share of Flexion common stock as well as one CVR per share for certain Flexion equity awards. Each CVR entitles Flexion shareholders to contingent milestone payments of up to an aggregate of$8.00 in cash per share of Flexion common stock if certain milestones are met on or prior toDecember 31, 2030 . Up to an additional$380.2 million in the aggregate may be payable to holders of the CVRs if each of the applicable milestones are achieved. For more information, see Note 4, Flexion Acquisition, to our condensed consolidated financial statements included herein.
Coronavirus (COVID-19) Pandemic and Global Economic Conditions
Since early 2020, our revenues have been impacted by COVID-19 pandemic-related
challenges that included the significant postponement or suspension in the
scheduling of elective surgical procedures due to public health guidance and
government directives. While the degree of impact has diminished during the
course of the pandemic due to the introduction of vaccines and therapeutics, as
well as the lessening of elective surgery restrictions, certain pandemic-related
operational and staffing challenges persist. It remains unclear how long it will
take the elective surgery market to normalize or if restrictions on elective
procedures will recur due to future COVID-19 variants or otherwise. Direct
effects of the pandemic and global economic conditions may negatively impact our
business, financial condition and results of operations. Such impacts may
include the effect of prolonged periods of inflation on our customers and
suppliers and longer lead-times or the inability to
Pacira BioSciences, Inc. | Q3 2022 Form 10-Q | Page 33
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Table of Contents
secure a sufficient supply of materials. The situation remains dynamic and
subject to rapid and possibly material changes. Additional negative impacts may
also arise that we are unable to foresee. The nature and extent of such impacts
will depend on future developments, which are highly uncertain and cannot be
predicted.
We will continue to actively monitor the situation and implement measures
recommended by federal, state or local authorities, or that we determine are in
the best interests of our patients, employees, partners, suppliers, shareholders
and stakeholders. For a description of risks facing us that relate to the
COVID-19 pandemic or any other future pandemic, epidemic or outbreak of
contagious disease, see our Annual Report on Form 10-K for the year ended
December 31, 2021 .
Recent Highlights
•The U.S. Patent and Trademark Office, or USPTO, issued Patent No. 11,452,691 in
October 2022 , which is a chemical composition patent and was submitted in the
FDA Approved Drug Products with Therapeutic Equivalence Evaluations (the "Orange
Book"). With this patent, there are eight EXPAREL patents listed in the Orange
Book, each with an expiration date of January 22, 2041 . We also received a
Notice of Allowance from the USPTO for a U.S. Patent Application that is a
product by process patent for EXPAREL. After issuance, we will submit this
patent for listing in the Orange Book.
•In September 2022 , we announced positive topline results from two Phase 3
registration studies of EXPAREL as a single-dose nerve block for postsurgical
regional analgesia in lower extremity surgeries. The first study, which
evaluated EXPAREL as a femoral nerve block in the adductor canal in patients
undergoing total knee arthroplasty, or TKA, achieved the primary endpoint
demonstrating a statistically significant reduction in cumulative pain scores
from 0 to 96 hours compared with bupivacaine HCl (p<0.01). EXPAREL also achieved
a statistically significant reduction in postsurgical opioid consumption through
96 hours (p<0.01) compared with bupivacaine HCl, a key secondary endpoint. The
second study, which evaluated EXPAREL as a sciatic nerve block in the popliteal
fossa in patients undergoing bunionectomy, achieved the primary endpoint by
demonstrating a statistically significant reduction in cumulative pain scores
from 0 to 96 hours compared with bupivacaine HCl (p<0.00001). EXPAREL also
achieved statistically significant reductions in postsurgical opioid consumption
(p<0.00001) and percentage of opioid-free subjects (p<0.001) through 96 hours
compared with bupivacaine HCl, which were key secondary endpoints. EXPAREL was
well tolerated with a safety profile consistent with bupivacaine HCl. With these
positive results, we plan to submit an sNDA to the FDA early next year seeking
expansion of the EXPAREL label to include femoral nerve block in the adductor
canal.
• In September 2022 , we announced that the EMA's Committee for Medicinal
Products for Human Use (CHMP) adopted a positive opinion recommending marketing
authorization for an expanded indication of EXPAREL to include use in children
aged 6 years and older as a field block for treatment of somatic post-operative
pain from small- to medium-sized surgical wounds. We expect a decision from the
European Commission , or EC, on the expanded indication in November 2022 . The
positive opinion was based on the results of the Phase 3 PLAY study of EXPAREL
infiltration in pediatric patients undergoing spinal or cardiac surgeries.
Overall findings were consistent with the pharmacokinetic and safety profiles
for adult patients with no safety concerns identified at a dose of 4 mg/kg. The
EC decision will be applicable to all 27 E.U. member states plus Iceland , Norway
and Liechtenstein . The data is still under review in the U.K. EXPAREL was
initially approved by the EC and in the U.K. in November 2020 as a brachial
plexus block or femoral nerve block for treatment of post-operative pain in
adults, and as a field block for treatment of somatic post-operative pain from
small- to medium-sized surgical wounds in adults.
EXPAREL
In theU.S. , EXPAREL is currently indicated in patients six years of age and older for single-dose infiltration to produce postsurgical local analgesia, and in adults as an interscalene brachial plexus nerve block to produce postsurgical regional analgesia. Safety and efficacy have not been established in other nerve blocks. In the E.U., EXPAREL is indicated as a brachial plexus block and femoral nerve block for treatment of post-operative pain in adults, and as a field block for treatment of somatic post-operative pain from small- to medium-sized surgical wounds in adults.
EXPAREL Label and Global Expansion
•Lower extremity nerve block. We have completed two Phase 3 registration studies of EXPAREL as a nerve block in lower extremity surgeries. InSeptember 2022 , we announced positive topline results from two Phase 3 registration studies of EXPAREL as a single-dose nerve block for postsurgical regional analgesia in lower extremity surgeries. The first study, which evaluated EXPAREL as a femoral nerve block in the adductor canal in patients undergoingTKA Pacira BioSciences, Inc. | Q3 2022 Form 10-Q | Page 34 -------------------------------------------------------------------------------- Table of Contents achieved the primary endpoint demonstrating a statistically significant reduction in cumulative pain scores from 0 to 96 hours compared with bupivacaine HCl (p<0.01). EXPAREL also achieved a statistically significant reduction in postsurgical opioid consumption through 96 hours (p<0.01) compared with bupivacaine HCl, a key secondary endpoint. The second study, which evaluated EXPAREL as a sciatic nerve block in the popliteal fossa in patients undergoing bunionectomy, achieved the primary endpoint by demonstrating a statistically significant reduction in cumulative pain scores from 0 to 96 hours compared with bupivacaine HCl (p<0.00001). EXPAREL also achieved statistically significant reductions in postsurgical opioid consumption (p<0.00001) and percentage of opioid-free subjects (p<0.001) through 96 hours compared with bupivacaine HCl, which were key secondary endpoints. EXPAREL was well tolerated with a safety profile consistent with bupivacaine HCl. With these positive results, we plan to submit an sNDA to the FDA early next year seeking expansion of the EXPAREL label to include femoral nerve block in the adductor canal. •Pediatrics. We are working with the FDA to finalize our studies to support expansion of the EXPAREL single-dose infiltration label to include patients under six years of age. We have met with the FDA to discuss appropriate studies of EXPAREL in pediatric patients aged 0 to less than 6 years of age. We expect that these studies, if successful, will be the basis for an sNDA seeking expansion of the EXPAREL label to include this patient population for single-dose infiltration. We are also discussing our regulatory strategy for EXPAREL administered as a nerve block in the pediatric setting. We are working with both the FDA and the EMA with the goal of harmonizing our pediatric clinical studies between the two regions. •Stellate ganglion block. Planning is underway for a multicenter registration study of EXPAREL as a stellate ganglion block for treating refractory cardiac ventricular dysrhythmias and for use to prevent postoperative atrial fibrillation after open heart surgery. We are working with a steering committee of Key Opinion Leaders in regional anesthesia and stellate ganglion blocks to help finalize study design. After we meet with the FDA to align on our regulatory strategy for expanding the EXPAREL label to include stellate ganglion block, we expect to proceed with a registration trial. We believe a stellate ganglion block utilizing EXPAREL will last for several days and address a significant unmet need in patients with ventricular and atrial dysrhythmias. •Global expansion. We have prioritized the European and Latin American markets for global expansion. InEurope , we were granted marketing authorization by the EC inNovember 2020 for EXPAREL as a brachial plexus block or femoral nerve block for treatment of post-operating pain in adults and as a field block for treatment of somatic post-operative pain from small- to medium-sized surgical wounds in adults, and inSeptember 2022 , we received a positive opinion recommending an expanded indication to include children aged 6 years or older as a field block for treatment of somatic post-operative pain from small- to medium-sized surgical wounds. We launched EXPAREL in theU.K. and targeted E.U. countries in the fourth quarter of 2021. InLatin America , we have a distribution agreement withEurofarma Laboratories S.A. , or Eurofarma, for the development and commercialization of EXPAREL. Eurofarma has the exclusive right to market and distribute EXPAREL in 19 countries inLatin America , includingArgentina ,Brazil ,Colombia andMexico . In addition, Eurofarma will be responsible for regulatory filings for EXPAREL in these countries. We will receive royalties and are also eligible to receive regulatory- and commercial-based milestone payments that are triggered by the achievement of certain events. ZILRETTA ZILRETTA was approved by the FDA inOctober 2017 and launched in theU.S. shortly thereafter. We market ZILRETTA through our ZILRETTA and iovera° sales force of approximately 50 Treatment Solutions Managers who are providing clinicians with two complementary and standalone non-opioid solutions for managing OA pain. ZILRETTA is the first and only extended-release, intra-articular therapy for OA knee pain. ZILRETTA employs a proprietary microsphere technology combining triamcinolone acetonide, or TA, a commonly administered, immediate-release corticosteroid, with a poly lactic-co-glycolic acid, or PLGA, matrix to provide extended pain relief. PLGA is a proven extended-release delivery vehicle that is metabolized to carbon dioxide and water as it releases drug in the intra-articular space and is used in other approved drug products and surgical devices. The ZILRETTA microspheres slowly and continuously release triamcinolone acetonide into the knee to provide significant pain relief for 12 weeks, with some people experiencing pain relief through 16 weeks. We believe ZILRETTA's extended-release profile may also provide effective treatment for OA pain of the shoulder, and we intend to initiate a Phase 3 trial investigating ZILRETTA in shoulder OA in 2023 after aligning with the FDA on study design. In addition, we are planning a study comparing ZILRETTA to immediate release triamcinolone acetonide in patients with Type 2 diabetes and are evaluating a repeat dosing study.Pacira BioSciences, Inc. | Q3 2022 Form 10-Q | Page 35 -------------------------------------------------------------------------------- Table of Contents ZILRETTA Clinical Benefits ZILRETTA combines a commonly administered steroid, TA, with PLGA, delivering a 32 milligram dose of TA to provide extended therapeutic concentrations in the joint and persistent analgesic effect. Based on the strength of its pivotal and other clinical trials, we believe that ZILRETTA represents an important treatment option for the millions of patients in theU.S. in need of safe and effective extended relief from OA knee pain. The pivotal Phase 3 trial, on which the approval of ZILRETTA was based, showed that ZILRETTA significantly reduced OA knee pain for 12 weeks, with some people experiencing pain relief through Week 16. Both the magnitude and duration of pain relief provided by ZILRETTA in clinical trials were clinically meaningful with the magnitude of pain relief among the largest seen to date in OA clinical trials. The overall frequency of treatment-related adverse events in these trials was similar to those observed with placebo, and no drug-related serious adverse events were reported. We believe that ZILRETTA holds the potential to become the corticosteroid of choice given its safety and efficacy profile, and the fact that it is the first and only extended-release corticosteroid on the market. InSeptember 2021 , theAmerican Association of Orthopaedic Surgeons , or AAOS, updated its evidence-based clinical practice guidelines, finding ZILRETTA can improve patient outcomes over traditional immediate-release corticosteroids.
iovera°
The iovera° system is an FDA-approved, non-opioid handheld cryoanalgesia device used to produce precise, controlled doses of cold temperature to targeted nerves. It has been FDA 510(k) cleared in theU.S. , has a CE mark in the E.U. and is cleared for marketing inCanada for the blocking of pain. We believe the iovera° system is highly complementary to EXPAREL and ZILRETTA as a non-opioid therapy that alleviates pain using a non-pharmacological nerve block to disrupt pain signals being transmitted to the brain from the site of injury or surgery. It is also indicated for the relief of pain and symptoms associated with arthritis of the knee for up to 90 days.
iovera° Clinical Benefits
There is a growing body of clinical data demonstrating success with iovera° treatment for OA of the knee. Surgical intervention is typically a last resort for patients suffering from OA of the knee. In one study, the majority of the patients suffering from OA of the knee experienced pain relief up to 150 days after being treated with iovera°.
Preliminary findings demonstrated reductions in opioids, including:
•The daily morphine equivalent consumption in the per protocol group analysis was significantly lower at 72 hours (p<0.05), 6 weeks (p<0.05) and 12 weeks (p<0.05).
•Patients who were administered iovera° were far less likely to take opioids six weeks after surgery. The number of patients taking opioids six weeks after TKA in the control group was three times the number of patients taking opioids in the cryoanalgesia group (14% vs. 44%, p<0.01).
•Patients in the iovera° group demonstrated a statistically significant reduction in pain scores from their baseline pain scores at 72 hours (p<0.05) and at 12 weeks (p<0.05).
We believe these data validate iovera° as a clinically meaningful non-opioid alternative for patients undergoing TKA, and that iovera° offers the opportunity to provide patients with non-opioid pain control well in advance of any necessary surgical intervention through a number of key product attributes:
•iovera° is safe and effective with immediate pain relief that can last for months as the nerve regenerates over time;
•iovera° is repeatable;
•The iovera° technology does not risk damage to the surrounding tissue;
•iovera° is a convenient handheld device with a single-use procedure-specific Smart Tip; and
•iovera° can be delivered precisely using ultrasound guidance or an anatomical landmark.
In
Pacira BioSciences, Inc. | Q3 2022 Form 10-Q | Page 36 -------------------------------------------------------------------------------- Table of Contents We are also encouraged by usage of iovera° in other areas. Key opinion leaders in orthopedics, spine and anesthesia are interested in replacing heat-based radiofrequency ablation with iovera° cold therapy. There is interest across a wide range of treatment opportunities such as low back pain, spine, spasticity and rib fracture. We intend to use investigator-initiated studies and grants to develop data across these areas.
iovera° Global Expansion
InJuly 2021 , we entered into a licensing agreement withVerve Medical Products, Inc. for the distribution of iovera° inCanada . We began selling iovera° inCanada in the fourth quarter of 2021. Additionally, we began selling iovera° in the E.U. through a contracted sales force in the first quarter of 2022.
The Osteoarthritis Market
OA is the most common form of arthritis. It is also called degenerative joint disease and occurs most frequently in the hands, hips and knees. With OA, the cartilage within a joint begins to break down and the underlying bone begins to change. These changes usually develop slowly and get worse over time. OA can cause pain, stiffness and swelling. In some cases it also causes reduced function and disability; some people are no longer able to do daily tasks or work. According to theCDC , OA affects over 32.5 million adults in theU.S. The lifetime risk of developing symptomatic knee OA is 45 percent. The prevalence of symptomatic knee OA increases with each decade of life, with the annual incidence of knee OA being highest between age 55 and 64 years old. There are 14 million individuals in theU.S. who have symptomatic knee OA, and nearly two million are under the age of 45. Surgical intervention is typically a last resort for patients suffering from OA of the knee. With the addition of ZILRETTA to our product offering, we can now offer clinicians the flexibility to individualize OA knee pain treatment with either ZILRETTA or a drug-free nerve block with iovera° based on patient factors and preference, physician training, site of care and reimbursement considerations.Pacira BioSciences, Inc. | Q3 2022 Form 10-Q | Page 37 --------------------------------------------------------------------------------
Table of Contents Clinical Development Programs PCRX-201 (Formerly FX-201) PCRX-201 was added to our portfolio as part of the Flexion Acquisition. PCRX-201 is a gene therapy product candidate designed to provide "on demand" production of an anti-inflammatory protein, interleukin-1 receptor antagonist (IL-1Ra) whenever inflammation is detected in the joint. Based upon very compelling initial Phase 1 efficacy and safety data for PCRX-201, we are working with investigators and plan to request an FDA meeting to discuss the regulatory pathway forward for OA of the knee-a very important and exciting addition to our durable non-opioid pain management pipeline.
PCRX-301 (Formerly FX-301)
PCRX-301 is a locally administered NaV1.7 inhibitor, known as funapide, formulated for extended release in a thermosensitive hydrogel. The initial development of PCRX-301 was intended to support administration as a peripheral analgesic lower extremity nerve block for management of post-operative pain. InSeptember 2022 , based on the results of a completed phase 1 study, we decided to discontinue further development of PCRX-301 due to a lack of clinical efficacy when compared to placebo and issues with the hydrogel formulation.
pMVL-Based Clinical Programs
Given the proven safety, flexibility and customizability of our pMVL drug delivery technology platform for acute, sub-acute and chronic pain applications, we have several pMVL-based products in clinical development. Following data readouts from preclinical and feasibility studies for these candidates, we have prioritized three programs for clinical development: (i) PCRX-401, a dexamethasone-pMVL for low back pain; (ii) PCRX-501, a high potency bupivacaine-pMVL for longer-lasting pain relief (20.0 mg/mL) and (iii) a bupivacaine-pMVL for intrathecal analgesia (13.3 mg/mL). We are planning to initiate the second half of our Phase 1 study of low-concentration bupivacaine-pMVL for intrathecal analgesia in late 2022.
External Innovation
In parallel to our internal clinical programs, our business development team
continues to pursue innovative acquisition targets that are complementary to
EXPAREL, ZILRETTA and iovera° and that we believe are of great interest to the
surgical and anesthesia audiences we are already calling on today. We are using
a combination of strategic investments, in-licensing and acquisition
transactions to build out a pipeline of innovation to improve patients' journeys
along the neural pain pathway. Select strategic investments we have made to
support promising early stage platforms are summarized below:
Company Development Stage Description of Platform Technology Potential Therapeutic
Areas
CX-011, an intra-articular injection designed
Carthronix, Inc. Phase 1-Ready to slow joint degeneration by mediating IL-6 Knee OA
cytokines
Genascence Corporation Phase 2-Ready AAV vector-based gene therapy targeting Knee OA
Interleukin 1 Receptor Antagonist (IL-1Ra)
Helper-dependent adenoviral vectors (HDAd) that OA and other
expression
SB01 7-amino acid chain peptide that binds to
Spine BioPharma, LLC Phase 3 and inducesdown regulation of transforming Degenerative disc disease
growth factor, beta 1 (TGF?1)
Pacira BioSciences, Inc. | Q3 2022 Form 10-Q | Page 38 -------------------------------------------------------------------------------- Table of Contents Product Portfolio and Internal Pipeline Our current product portfolio and internal product candidate pipeline, along with anticipated milestones over the next 12 to 18 months, are summarized in the table below: [[Image Removed: pcrx-20220930_g2.jpg]] - NOCITA® is a registered trademark ofAratana Therapeutics, Inc. , a wholly owned subsidiary of Elanco Animal Health, Inc.
Pacira Training Facilities
InOctober 2020 , we opened the Pacira Innovation and Training center ofTampa (the "PITT"). We designed this facility to help advance clinician understanding of the latest local, regional and field block approaches for managing pain. The PITT provides an unparalleled training environment for healthcare providers working to reduce or eliminate patient exposure to opioids. The PITT supports a full range of educational events to advance clinician understanding of the latest local, regional, and field block approaches for managing pain and reducing or eliminating exposure to opioids. Our corporate headquarters are also located at the PITT. The PITT consists of approximately 13,000 square-feet of fully adaptable space and is equipped with state-of-the-art technology and audio/visual capabilities and features several distinct training spaces including a simulation lab equipped with seven ultrasound scanning stations; a lecture hall featuring a 4½-foot tall by 24-foot wide liquid crystal display video wall toPacira BioSciences, Inc. | Q3 2022 Form 10-Q | Page 39
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Table of Contents support live, virtual and even global presentations; and a green-screen broadcast studio designed to livestream content with single or multiple hosts.
In addition to our EXPAREL programs, we are hosting ongoing workshops to train new users on best practice techniques for iovera° administration at the PITT. Led by healthcare professionals, these labs include didactic lectures and hands-on trainings including live model nerve scanning and identification using ultrasound and peripheral nerve stimulation.
At no fee to the organization, the PITT also serves as a venue for national anesthesia provider organizations to host their own workshops and training sessions to educate healthcare providers.
We have launched development plans for a second training facility inHouston, Texas . This 19,000 square-foot state-of-the-art facility will feature an adaptive lecture hall, broadcast studio and lab space for cadaver and other interactive workshops. These training centers are core to developing both our physician champions and community-based clinicians who want to stay on the forefront of opioid-sparing pain management. We expect to complete this facility before the end of 2022 which would immediately double our capacity and ability to host programs for EXPAREL, ZILRETTA and iovera°.
Results of Operations
Comparison of the Three and Nine Months Ended
Revenues
Net product sales consist of (i) EXPAREL in theU.S. , the E.U., and theU.K. ; (ii) ZILRETTA in theU.S. ; (iii) iovera° in theU.S. ,Canada and the E.U. and (iv) sales of, and royalties on, our bupivacaine liposome injectable suspension for veterinary use.
The following table provides information regarding our revenues during the periods indicated, including percent changes (dollar amounts in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 % Increase / (Decrease) 2022 2021 % Increase / (Decrease)
Net product sales:
EXPAREL $ 132,642 $ 121,926 9% $ 398,854 $ 366,663 9%
ZILRETTA (1) 26,494 - N/A 77,546 - N/A
iovera° 4,467 4,182 7% 10,694 11,264 (5)%
Bupivacaine liposome injectable
suspension 2,957 683 100%+ 5,469 2,465 100%+
Total net product sales 166,560 126,791 31% 492,563 380,392 29%
Royalty revenue 906 931 (3)% 2,305 1,822 27%
Collaborative licensing and
milestone revenue - - N/A - 125 (100)%
Total revenues $ 167,466 $ 127,722 31% $ 494,868 $ 382,339 29%
(1) ZILRETTA net product sales began
EXPAREL revenue increased 9% in the three and nine months endedSeptember 30, 2022 versus 2021 primarily due to increases of 7.2% in gross vial volume in both periods and increases of 3.7% and 3.8% in gross selling price per unit, respectively, partially offset by the sales mix of EXPAREL vial sizes. Although the demand for EXPAREL has continued to increase primarily as a result of Ambulatory Surgical Centers and anesthesiologists broadening the use of long-acting EXPAREL regional approaches as a foundation of multimodal opioid-minimization strategies that enable shifting inpatient procedures to 23-hour sites of care, the elective surgery market has faced post-pandemic-related challenges due to regional surges in COVID-19 variant cases, staffing shortages and fatigue from care teams addressing significant procedure backlogs. EXPAREL utilization remains above the overall sharp decline in elective surgical procedures relative to pre-pandemic baseline levels due to increased utilization in outpatient settings and emergent procedures. As a result of the Flexion Acquisition, we acquired ZILRETTA inNovember 2021 , which is an extended-release corticosteroid treatment for OA knee pain. We recognized net product sales of$26.5 million and$77.5 million for the three and nine months endedSeptember 30, 2022 , respectively.Pacira BioSciences, Inc. | Q3 2022 Form 10-Q | Page 40
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Net product sales of iovera° increased 7% in the three months endedSeptember 30, 2022 versus 2021 due to the rollout of generation 2 iovera° products and an increased sales force. Net product sales of iovera° decreased 5% in the nine months endedSeptember 30, 2022 versus 2021 primarily due to a delay in the transition from generation 1 to generation 2 iovera° products and short-term variations in reimbursement policies in certain territories. Bupivacaine liposome injectable suspension net product sales increased over 100% in the three and nine months endedSeptember 30, 2022 versus 2021. Its related royalties decreased nominally in the three months endedSeptember 30, 2022 and increased 27% in the nine months endedSeptember 30, 2022 versus 2021 primarily due to the timing of orders placed byAratana Therapeutics, Inc. for veterinary use. Any renewed government suspension of or reluctance of patients to have elective procedures would impact our future sales of EXPAREL, ZILRETTA and iovera° during the COVID-19 pandemic. The following tables provide a summary of activity with respect to our sales related allowances and accruals related to EXPAREL and ZILRETTA for the nine months endedSeptember 30, 2022 and 2021 (in thousands): Volume Returns Prompt Payment Service Rebates and Government September 30, 2022 Allowances Discounts Fees Chargebacks Rebates Total Balance at December 31, 2021$ 3,361 $ 1,178
953 8,213 12,358 30,122 1,162 52,808
Payments / Adjustments (2,802) (8,286) (13,069) (29,092) (1,181) (54,430)
Balance at September 30,
2022 $ 1,512 $ 1,105 $ 2,925 $ 4,524 $ 742 $ 10,808
Volume
Returns Prompt Payment Service Rebates and Government
September 30, 2021 Allowances Discounts Fees Chargebacks Rebates Total
Balance at December 31,
2020 $ 1,023 $ 1,007
731 7,552 5,701 9,276 - 23,260
Payments / Adjustments (347) (7,578) (5,870) (8,838) - (22,633)
Balance at September 30,
2021 $ 1,407 $ 981 Total reductions of gross product sales from sales-related allowances and accruals were$52.8 million and$23.3 million , or 9.7% and 5.8% of gross product sales, for the nine months endedSeptember 30, 2022 and 2021, respectively. The overall increase in sales-related allowances and accruals as a percentage of gross product sales was primarily related to the addition of the ZILRETTA-related allowances and accruals.
Cost of Goods Sold
Cost of goods sold primarily relates to the costs to produce, package and
deliver our products to customers. These expenses include labor, raw materials,
manufacturing overhead and occupancy costs, depreciation of facilities, royalty
payments, quality control and engineering.
The following table provides information regarding our cost of goods sold and
gross margin during the periods indicated, including percent changes (dollar
amounts in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 % Increase / (Decrease) 2022 2021 % Increase / (Decrease)Cost of goods sold$50,678 $ 34,651 46%$ 137,379 $101,248 36% Gross margin 70 % 73 % 72 % 74 % Gross margin decreased three percentage points in the three months endedSeptember 30, 2022 versus 2021 primarily due to higher inventory reserves and the ZILRETTA step-up of fixed assets and inventory to fair value in accordance with purchase accounting, partially offset by an increase in gross margin associated with ZILRETTA. Gross margin decreased two percentage points in the nine months endedSeptember 30, 2022 versus 2021, mainly due to higher inventory reserves and the ZILRETTA step-up of fixed assets and inventory to fair value in accordance with purchase accounting, partially offset by unplanned downtime in the prior period. Pacira BioSciences, Inc. | Q3 2022 Form 10-Q | Page 41
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Research and Development Expenses
Research and development expenses primarily consist of costs related to clinical
trials and related outside services, product development and other research and
development costs, including trials that we are conducting to generate new data
for EXPAREL, ZILRETTA and iovera° and stock-based compensation expense. Clinical
and preclinical development expenses include costs for clinical personnel,
clinical trials performed by third-parties, toxicology studies, materials and
supplies, database management and other third-party fees. Product development
and manufacturing capacity expansion expenses include development costs for our
products, which include personnel, equipment, materials and contractor costs for
process development and product candidates, development costs related to
significant scale-ups of our manufacturing capacity and facility costs for our
research space. Regulatory and other expenses include regulatory activities
related to unapproved products and indications, medical information expenses and
related personnel. Stock-based compensation expense relates to the costs of
stock option grants, awards of restricted stock units, or RSUs, and our employee
stock purchase plan, or ESPP.
The following table provides a breakout of our research and development expenses
during the periods indicated, including percent changes (dollar amounts in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 % Increase / (Decrease) 2022 2021 % Increase / (Decrease)
Clinical and preclinical
development $ 8,384 $ 4,005 100%+ $ 39,558 $ 17,136 100%+
Product development and
manufacturing capacity expansion 7,245 4,738 53% 17,318 14,047 23%
Regulatory and other 1,993 1,679 19% 5,655 5,257 8%
Stock-based compensation 1,783 1,156 54% 4,761 3,591 33%
Total research and development
expense $ 19,405 $ 11,578 68% $ 67,292 $ 40,031 68%
% of total revenues 12 % 9 % 14 % 10 %
Total research and development expense increased 68% in the three and nine
months ended
Clinical and preclinical development expense increased over 100% in each of the three and nine month periods endedSeptember 30, 2022 versus 2021 due to ongoing expenses and completion of two EXPAREL lower extremity nerve block trials in bunionectomy and TKA, ongoing trials for the product candidates acquired as part of the Flexion Acquisition and toxicology studies for product development candidates. The prior year periods were affected by the COVID-19 pandemic, whereas the current year includes an expanded product candidate pipeline internally and as a result of the Flexion Acquisition. Product development and manufacturing capacity expansion expense increased 53% and 23% in the three and nine months endedSeptember 30, 2022 versus 2021, respectively, mainly attributable to the significant scale-up of our EXPAREL manufacturing capacity at our Science Center Campus inSan Diego, California . Regulatory and other expense increased 19% in the three months endedSeptember 30, 2022 versus 2021 related to our iovera° clinical data registry. Regulatory and other expense increased 8% for the nine months endedSeptember 30, 2022 as compared to the same period in 2021 in support of the E.U. EXPAREL pediatric submission andU.S. sNDA submission.
Stock-based compensation increased 54% and 33% in the three and nine months
ended
Selling, General and Administrative Expenses
Sales and marketing expenses primarily consist of compensation and benefits for
our sales force and personnel that support our sales, marketing, medical and
scientific affairs operations, payments to our marketing partners for the
promotion and sale of our products, expenses related to communicating the health
outcome benefits of our products, investments in provider-level market access
and patient reimbursement support and educational programs for our customers.
General and administrative expenses consist of compensation and benefits for
legal, finance, regulatory activities related to approved products and
indications, compliance, information technology, human resources, business
development, executive management and other supporting personnel. It also
includes professional fees for legal, audit, tax and consulting services.
Stock-based compensation expense relates to the costs of stock option grants,
RSU awards and our ESPP.
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The following table provides information regarding our selling, general and administrative expenses during the periods indicated, including percent changes (dollar amounts in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 % Increase / (Decrease) 2022 2021 % Increase / (Decrease)
Sales and marketing $ 33,706 $ 26,299 28% $ 109,000 $ 81,660 33%
General and administrative 18,277 13,441 36% 55,321 42,195 31%
Stock-based compensation 9,300 8,116 15% 26,225 23,336
12%
Total selling, general and administrative expense$ 61,283 $ 47,856 28%$ 190,546 $ 147,191 29% % of total revenues 37 % 37 % 39 % 38 %
Total selling, general and administrative expense increased 28% and 29% in the
three and nine months ended
Sales and marketing expenses increased 28% and 33% in the three and nine months endedSeptember 30, 2022 versus 2021, respectively. The increases were driven by sales force expansion supporting both ZILRETTA and iovera°, following the completion of the Flexion Acquisition inNovember 2021 and fully staffing a contracted sales force inEurope . Increases also included expenses for patient reimbursement support for ZILRETTA. We are continuing our marketing investment in EXPAREL and iovera°, which includes educational initiatives and programs related to the impact of opioids and postsurgical pain management and our national advocacy campaign designed to educate patients about non-opioid treatment options. Additionally, we continue our investment in clinician training in the use of EXPAREL and iovera° at our PITT training facility inTampa, Florida . The addition of ZILRETTA to our commercial portfolio provides clinicians with two unique OA treatment options to individualize patient care. General and administrative expenses increased 36% and 31% in the three and nine months endedSeptember 30, 2022 versus 2021, respectively. The increases in the three and nine months ended were driven by administrative support costs as a result of the Flexion Acquisition inNovember 2021 , including transition expenses during integration, legal costs to support intellectual property protection and additional support for our expansion into European markets.
Stock-based compensation increased 15% and 12% in the three and nine months
ended
Amortization of Acquired Intangible Assets
The following table provides a summary of the amortization of acquired intangible assets during the periods indicated, including percent changes (dollar amounts in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 % Increase / (Decrease) 2022 2021 % Increase / (Decrease)
Amortization of acquired
intangible assets $ 14,322 $ 1,967 100% + $ 42,966 $ 5,900 100% +
Amortization of acquired intangible assets increased substantially in the three
and nine months ended September 30, 2022 versus 2021 due to the Flexion
Acquisition. We acquired a developed technology intangible asset for ZILRETTA
for OA knee pain, which is being amortized over a useful life of approximately
ten years. For more information, see Note 4, Flexion Acquisition, and Note 8,
Goodwill and Intangible Assets, to our condensed consolidated financial
statements included herein.
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Acquisition-Related Charges (Gains) and Other
The following table provides a summary of the costs related to the Flexion
Acquisition, MyoScience Acquisition, termination costs and other activities
during the periods indicated, including percent changes (dollar amounts in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 % Increase / (Decrease) 2022 2021 % Increase / (Decrease)
Acquisition-related charges (gains),
net $ 489 $ (208) N/A $ (13,232) $ (1,189) 100% +
Other - 445 (100)% - 3,445 (100)%
Total acquisition-related charges
(gains) and other $ 489 $ 237 100% + $ (13,232) $ 2,256 N/A
Total acquisition-related charges (gains) and other increased over 100% in the
three months ended September 30, 2022 versus 2021. Total acquisition-related
charges (gains) and other decreased substantially in the nine months ended
September 30, 2022 versus 2021.
During the three months ended September 30, 2022 , we recognized
acquisition-related charges, net of $0.5 million . These charges are primarily
related to severance and other employee related costs, legal and other
professional fees, third-party services and other one-time charges associated
with the Flexion Acquisition, which were partially offset by credits from
changes in the fair value of contingent consideration related to the Flexion
Acquisition and MyoScience Acquisition.
During the nine months ended September 30, 2022 , we recognized
acquisition-related gains, net of $13.2 million . These gains were primarily
driven by reductions in acquisition contingent consideration liabilities due to
adjustments to near-term forecasts for the applicable period during which the
Flexion contingent consideration may be achieved under the Merger Agreement and
due to the reduced probability of meeting the MyoScience contingent
consideration milestones by December 31, 2023 , the expiration date for achieving
those milestones. These gains were partially offset by severance and other
employee related costs, legal and other professional fees, third-party services
and other one-time charges associated with the Flexion Acquisition. For more
information, see Note 10, Financial Instruments and Note 15, Acquisition-Related
Charges and Other, to our condensed consolidated financial statements included
herein.
In the three and nine months ended September 30, 2021 , we recognized
acquisition-related charges and other charges of $0.2 million and $2.3 million ,
respectively. Included in these three and nine month periods, as part of the
MyoScience Acquisition, we recognized acquisition-related gains of $1.2 million
and $2.1 million , respectively, related to changes in the fair value of
contingent consideration. These gains were offset by acquisition-related charges
of $1.4 million in both the three and nine month periods related to severance
and acquisition-related fees. Also included in the nine months ended
September 30, 2021 is a $3.0 million charge related to the termination of an
agreement with Nuance Biotech Co. Ltd to advance the development and
commercialization of EXPAREL in China due to the lack of a viable regulatory
pathway that adequately safeguards our intellectual property against the risk of
a generic product. See Note 10, Financial Instruments and Note 15,
Acquisition-Related Charges and Other, to our condensed consolidated financial
statements included herein, for more information.
Other (Expense) Income
The following table provides information regarding other expense, net during the periods indicated, including percent changes (dollar amounts in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 % Increase / (Decrease) 2022 2021 % Increase / (Decrease)
Interest income $ 1,234 $ 177 100% + $ 1,757 816 100% +
Interest expense (9,856) (7,333) 34% (28,935) (21,327) 36%
Other, net (10,598) (46) 100% + (11,369) (2,600) 100% +
Total other expense, net $ (19,220) (7,202) 100% + $ (38,547) (23,111) 67%
Total other expense, net increased by more than 100% and 67% in the three and
nine months ended
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The 34% and 36% increase in interest expense during the three and nine months endedSeptember 30, 2022 , respectively, was due to the$375.0 million term loan B credit agreement (the "Term Loan") entered into inDecember 2021 . This increase was partially offset by the absence of debt discount amortization associated with our convertible notes in the current year due to adopting Accounting Standards Update, or ASU, 2020-06 in 2022, and the maturing of our 2.375% convertible senior notes due 2022, or 2022 Notes, onApril 1, 2022 . For additional information regarding the adoption of ASU 2020-06, see Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements herein. The increase in interest expense was slightly offset by increases in interest income in the three and nine months endedSeptember 30, 2022 versus 2021 due to higher interest rates and overall investment balance. Other, net expense during the three and nine months endedSeptember 30, 2022 included a$10.0 million impairment related to an equity investment. Other, net for the nine months endedSeptember 30, 2021 included a realized loss on the sale of an equity investment in the amount of$2.6 million .
Income Tax Expense
The following table provides information regarding our income tax expense during
the periods indicated, including percent changes (dollar amounts in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 % Increase / (Decrease) 2022 2021 % Increase / (Decrease)
Income tax expense $ 2,762 $ 6,571 (58)% $ 5,359 $ 15,492 (65)%
Effective tax rate 133 % 27 % 17 % 25 %
The effective tax rates were 133% and 27% for the three months ended
September 30, 2022 and September 30, 2021 , respectively. The effective tax rates
were 17% and 25% for the nine months ended September 30, 2022 and September 30,
2021 , respectively. Income tax expense represents the estimated annual effective
tax rate applied to the year-to-date domestic operating results adjusted for
certain discrete tax items.
The effective tax rates for the three months ended
The effective tax rates for the nine months ended
Liquidity and Capital Resources
Since our inception in 2006, we have devoted most of our cash resources to manufacturing, research and development and selling, general and administrative activities related to the development and commercialization of EXPAREL. In addition, we acquired ZILRETTA as part of the Flexion Acquisition inNovember 2021 and iovera° as part of the MyoScience Acquisition inApril 2019 . We are primarily dependent on the commercial success of EXPAREL and ZILRETTA. We have financed our operations primarily with the proceeds from the sale of convertible senior notes and other debt, common stock, product sales and collaborative licensing and milestone revenue. As ofSeptember 30, 2022 , we had an accumulated deficit of$138.6 million , cash and cash equivalents and available-for-sale investments of$346.1 million and working capital of$401.9 million .
We expect that our cash and available-for-sale investments on hand will be adequate to cover our short-term liquidity needs, and that we would be able to access other sources of financing should the need arise.
InMarch 2020 , the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, allows for certain measures to increase liquidity for businesses such as the deferral of employer payroll taxes, a tax credit for retaining employees and other provisions. We benefited from the provision to defer the payment of certain employer payroll taxes in the amount of$2.8 million for the year endedDecember 31, 2020 and remitted$1.4 million inDecember 2021 . The remaining$1.4 million is due byDecember 31, 2022 .Pacira BioSciences, Inc. | Q3 2022 Form 10-Q | Page 45
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