Pacira(PCRX) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's analysis of financial performance Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and detailed notes on key accounting policies Condensed Consolidated Balance Sheets The balance sheet details the company's financial position, showing increases in assets, liabilities, and stockholders' equity | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------- | :--------------------------- | :------------------------------- | | Total Assets | $1,646,820 | $1,574,386 | | Total Liabilities | $767,542 | $704,256 | | Total Stockholders' Equity | $879,278 | $870,130 | | Cash and Cash Equivalents | $247,053 | $153,298 | | Short-term AFS Investments | $157,173 | $125,283 | Condensed Consolidated Statements of Operations The statements of operations show revenue growth, changes in operating expenses, and varied net income trends | Metric | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :---------------------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Total Revenues | $178,023 | $169,467 | $345,140 | $329,808 | | Cost of Goods Sold | $44,262 | $48,207 | $91,678 | $97,227 | | Research and Development | $20,338 | $18,824 | $38,576 | $35,964 | | Selling, General and Administrative | $68,126 | $64,850 | $140,152 | $135,693 | | Amortization of Acquired Intangible Assets | $14,322 | $14,322 | $28,644 | $28,644 | | Contingent Consideration Charges (Gains), Restructuring Charges and Other | $2,735 | $(16,613) | $4,638 | $(4,506) | | Net Income | $18,886 | $25,763 | $27,865 | $6,227 | | Basic Net Income Per Common Share | $0.41 | $0.56 | $0.60 | $0.14 | | Diluted Net Income Per Common Share | $0.39 | $0.51 | $0.58 | $0.13 | Condensed Consolidated Statements of Comprehensive Income This statement presents comprehensive income, including net income and other comprehensive income or loss items | Metric | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net Income | $18,886 | $25,763 | $27,865 | $6,227 | | Total Other Comprehensive (Loss) Income | $(47) | $(36) | $(142) | $207 | | Comprehensive Income | $18,839 | $25,727 | $27,723 | $6,434 | Condensed Consolidated Statements of Stockholders' Equity This statement details changes in stockholders' equity, including net income, stock compensation, and repurchases | Item | 6 Months Ended Jun 30, 2024 (in thousands) | | :---------------------------------------------------- | :----------------------------------------- | | Balance at December 31, 2023 | $870,130 | | Stock-based compensation | $25,675 | | Purchase of treasury stock, inclusive of excise tax | $(25,121) | | Purchase of capped call transaction, net of tax | $(20,112) | | Other comprehensive loss | $(142) | | Net income | $27,865 | | Balance at June 30, 2024 | $879,278 | Condensed Consolidated Statements of Cash Flows Cash flow statements show increased operating cash, a shift in financing activities, and overall cash growth | Activity | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Net cash provided by operating activities | $102,337 | $62,627 | | Net cash (used in) provided by investing activities | $(30,745) | $73,509 | | Net cash provided by (used in) financing activities | $22,163 | $(153,465) | | Net increase (decrease) in cash and cash equivalents | $93,755 | $(17,329) | | Cash and cash equivalents, end of period | $247,053 | $86,810 | Supplemental Cash Flow Information | Supplemental Cash Flow Information | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :--------------------------------- | :----------------------------------------- | :----------------------------------------- | | Cash paid for interest | $6,988 | $20,802 | | Net cash paid for income taxes | $4,667 | $795 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations for the financial statements, covering accounting policies and key financial items NOTE 1—DESCRIPTION OF BUSINESS Pacira BioSciences leads in non-opioid pain management with EXPAREL, ZILRETTA, and iovera° as core products - Pacira is a therapeutic area leader in non-opioid pain management, with a mission to provide non-opioid options and redefine the role of opioids for rescue therapy only[81] - Key products include EXPAREL (long-acting local analgesic), ZILRETTA (extended-release intra-articular injection for OA knee pain), and iovera° (handheld cryoanalgesia device)[81] - The company is managed as a single business segment, and a new Chief Executive Officer was appointed effective January 2, 2024[82] NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the basis of presentation for interim financial statements and evaluates recent accounting pronouncements - Interim condensed consolidated financial statements are prepared in accordance with GAAP and SEC rules, with certain information condensed or omitted compared to annual statements[199] - The company is evaluating the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) on its consolidated financial statements, effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively[83][84] Wholesaler Concentration | Wholesaler Concentration | 3 Months Ended Jun 30, 2024 | 3 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | | :----------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Largest wholesaler | 34% | 33% | 35% | 32% | | Second largest wholesaler | 22% | 24% | 23% | 24% | | Third largest wholesaler | 19% | 20% | 19% | 21% | | Total | 75% | 77% | 77% | 77% | NOTE 3—REVENUE This note details revenue recognition policies, primarily from product sales, and explains variable consideration - Net product sales include EXPAREL (U.S., E.U., U.K.), ZILRETTA (U.S.), iovera° (U.S., Canada, Europe), and bupivacaine liposome injectable suspension for veterinary use[85] - Revenue is recognized when control of promised goods is transferred to the customer, net of estimated variable consideration (returns, discounts, service fees, government rebates, volume rebates, and chargebacks)[53][56] Product Sales by Category | Product | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :--------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | EXPAREL | $136,852 | $135,127 | $269,282 | $265,535 | | ZILRETTA | $30,707 | $29,261 | $56,546 | $53,595 | | iovera° | $5,674 | $4,384 | $10,704 | $8,385 | | Bupivacaine liposome injectable suspension | $3,154 | $695 | $5,679 | $1,383 | | Total Net Product Sales | $176,387 | $169,467 | $342,211 | $328,898 | NOTE 4—INVENTORIES This note provides a breakdown of the company's inventory components, including raw materials and finished goods | Component | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------- | :--------------------------- | :------------------------------- | | Raw materials | $52,340 | $54,099 | | Work-in-process | $23,649 | $31,215 | | Finished goods | $27,449 | $19,039 | | Total | $103,438 | $104,353 | NOTE 5—FIXED ASSETS This note details fixed assets, including machinery and construction in progress, and highlights manufacturing updates | Category | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--------------------------- | :--------------------------- | :------------------------------- | | Machinery and equipment | $106,877 | $121,773 | | Leasehold improvements | $58,835 | $61,826 | | Computer equipment and software | $16,490 | $17,186 | | Office furniture and equipment | $2,446 | $2,543 | | Construction in progress | $107,997 | $105,905 | | Total | $292,645 | $309,233 | | Less: accumulated depreciation | $(123,795) | $(135,306) | | Fixed assets, net | $168,850 | $173,927 | - During the six months ended June 30, 2024, the company disposed of $19.0 million of fully depreciated 45-liter EXPAREL manufacturing equipment[186] - A new 200-liter EXPAREL manufacturing suite at the Science Center Campus in San Diego, California, was placed into service in July 2024, reclassifying approximately $76.1 million from construction in progress[186] NOTE 6—LEASES This note describes operating lease arrangements, detailing costs, remaining lease terms, and discount rates Lease Costs | Lease Cost Category | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :------------------ | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Fixed lease costs | $3,460 | $3,631 | $6,957 | $7,259 | | Variable lease costs | $289 | $378 | $783 | $945 | | Sublease income | $(61) | $(169) | $(192) | $(322) | | Total | $3,688 | $3,840 | $7,548 | $7,882 | Lease Metrics | Lease Metric | June 30, 2024 | December 31, 2023 | | :---------------------------- | :------------ | :---------------- | | Weighted average remaining lease term | 5.58 years | 6.39 years | | Weighted average discount rate | 7.00% | 7.03% | Cash Flow Information for Leases | Cash Flow Item | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :------------- | :----------------------------------------- | :----------------------------------------- | | Cash paid for operating lease liabilities, net of lease incentives | $6,429 | $7,325 | NOTE 7—GOODWILL AND INTANGIBLE ASSETS This note provides information on goodwill and intangible assets, including carrying values and amortization expenses - Goodwill balance remained at $163.2 million as of June 30, 2024, and December 31, 2023[37] Intangible Assets, Net | Category | Gross Carrying Value (June 30, 2024, in thousands) | Accumulated Amortization (June 30, 2024, in thousands) | Intangible Assets, Net (June 30, 2024, in thousands) | Weighted-Average Useful Lives | | :------------------------ | :------------------------------------------------- | :----------------------------------------------------- | :--------------------------------------------------- | :---------------------------- | | Developed technologies | $590,000 | $(170,295) | $419,705 | 10 years, 5 months | | Customer relationships | $90 | $(47) | $43 | 10 years | | Acquired IPR&D | $34,866 | — | $34,866 | | | Total intangible assets, net | $624,956 | $(170,342) | $454,614 | | - Amortization expense on intangible assets was $14.3 million for both the three months ended June 30, 2024 and 2023, and $28.6 million for both the six months ended June 30, 2024 and 2023[16] NOTE 8—DEBT This note details the company's debt structure, including term loans and convertible notes, and recent financing activities Debt Outstanding | Debt Type | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------------------------- | :--------------------------- | :------------------------------- | | Term loan A facility maturing March 2028 | $109,751 | $115,202 | | 2.125% Convertible senior notes due May 2029 | $278,394 | — | | 0.750% Convertible senior notes due August 2025 | $201,155 | $398,594 | | 3.375% Convertible senior notes due May 2024 | — | $8,641 | | Total | $589,300 | $522,437 | - The TLA Term Loan, with a principal amount of $150.0 million, matures on March 31, 2028, and had an interest rate of 8.43% for term benchmark borrowings as of June 30, 2024. The company made $5.6 million in voluntary principal prepayments during the six months ended June 30, 2024[19][21] - In May 2024, the company completed a private placement of $287.5 million in 2.125% convertible senior notes due 2029, with an initial conversion price of $39.56 per share and capped call transactions to reduce potential dilution[24][27][389] - The company repurchased $200.0 million aggregate principal amount of its 0.750% convertible senior notes due 2025 in May 2024 for $191.4 million cash, resulting in a $7.5 million gain on early extinguishment of debt. $202.5 million principal remains outstanding on the 2025 Notes[28][395] NOTE 9—FINANCIAL INSTRUMENTS This note discusses fair value measurements for financial instruments, including investments and credit risk - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs not quoted in active markets), and Level 3 (unobservable inputs)[61][62][402] Fair Value Measurements (Level 3) | Item | Carrying Value (June 30, 2024, in thousands) | Fair Value (Level 3, June 30, 2024, in thousands) | | :------------------------------------ | :------------------------------------------- | :------------------------------------------------ | | Equity investments | $15,877 | $15,877 | | Convertible notes receivable | $11,995 | $11,995 | | Acquisition-related contingent consideration | $22,401 | $22,401 | - Acquisition-related contingent consideration was $22.4 million as of June 30, 2024, with a $2.3 million gain recognized in the six months ended June 30, 2024, primarily due to an adjustment in the probability of achieving a Flexion regulatory milestone[65][90] Available-for-Sale Investments | Investment Type | Cost (June 30, 2024, in thousands) | Gross Unrealized Gains (in thousands) | Gross Unrealized Losses (in thousands) | Fair Value (Level 2, in thousands) | | :------------------------ | :--------------------------------- | :------------------------------------ | :------------------------------------- | :--------------------------------- | | Asset-backed securities | $37,080 | — | $(43) | $37,037 | | Commercial paper | $95,898 | $9 | $(91) | $95,816 | | Corporate bonds | $18,362 | — | $(17) | $18,345 | | U.S. federal agency bonds | $5,983 | — | $(8) | $5,975 | | Total | $157,323 | $9 | $(159) | $157,173 | - Three wholesalers accounted for 36%, 18%, and 15% of the company's accounts receivable as of June 30, 2024, indicating a concentration of credit risk[71] NOTE 10—STOCKHOLDERS' EQUITY This note details changes in comprehensive income and the company's share repurchase program Accumulated Other Comprehensive Income | Item | Balance at Dec 31, 2023 (in thousands) | Net Unrealized Gain (Loss) from AFS Investments (in thousands) | Unrealized Foreign Currency Translation (in thousands) | Balance at Jun 30, 2024 (in thousands) | | :---------------------------------------- | :------------------------------------- | :------------------------------------------------------------- | :----------------------------------------------------- | :------------------------------------- | | Net unrealized loss on investments, net of tax | $124 | $(160) | — | $(36) | | Foreign currency translation adjustments | $123 | — | $18 | $141 | | Total Accumulated Other Comprehensive Income | $247 | $(160) | $18 | $105 | - A new share repurchase program was approved in May 2024, authorizing up to $150.0 million of common stock, expiring December 31, 2026. The company repurchased 837,240 shares for $25.1 million in May 2024[72][99] NOTE 11—STOCK PLANS This note details stock-based compensation expense, stock option and RSU activity, and the ESPP Stock-Based Compensation Expense | Expense Category | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :---------------------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Cost of goods sold | $1,259 | $1,436 | $2,387 | $3,160 | | Research and development | $1,925 | $1,722 | $3,728 | $3,597 | | Selling, general and administrative | $8,848 | $7,797 | $16,833 | $16,188 | | Contingent consideration charges (gains), restructuring charges and other | $492 | — | $2,727 | — | | Total | $12,524 | $10,955 | $25,675 | $22,945 | - As of June 30, 2024, 6,946,903 stock options were outstanding with a weighted average exercise price of $44.69 per share[101] - As of June 30, 2024, 2,676,379 restricted stock units were unvested with a weighted average grant date fair value of $34.71 per share[101] - During the six months ended June 30, 2024, 56,077 shares were purchased and issued through the Employee Stock Purchase Plan (ESPP)[102] NOTE 12—NET INCOME PER SHARE This note explains the calculation of basic and diluted net income per common share, including adjustments Net Income Per Common Share | Metric | 3 Months Ended Jun 30, 2024 | 3 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic net income per common share | $0.41 | $0.56 | $0.60 | $0.14 | | Diluted net income per common share | $0.39 | $0.51 | $0.58 | $0.13 | Weighted Average Common Shares Outstanding | Weighted Average Common Shares Outstanding | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Basic | 46,174 | 46,088 | 46,337 | 46,019 | | Diluted | 50,539 | 52,054 | 51,366 | 46,285 | NOTE 13—INCOME TAXES This note details income before taxes, income tax expense, and effective tax rates, highlighting influencing factors Income Before Income Taxes | Category | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Domestic | $36,996 | $40,189 | $50,653 | $12,416 | | Foreign | $(412) | $(2,335) | $(429) | $(1,036) | | Total Income Before Income Taxes | $36,584 | $37,854 | $50,224 | $11,380 | Income Tax Expense and Effective Tax Rate | Metric | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :-------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Income Tax Expense | $17,698 | $12,091 | $22,359 | $5,153 | | Effective Tax Rate | 48% | 32% | 45% | 45% | - The effective tax rates for the three and six months ended June 30, 2024, include costs related to non-deductible stock-based compensation (primarily expired stock options) and non-deductible executive compensation, partially offset by tax credits[262] NOTE 14—CONTINGENT CONSIDERATION CHARGES (GAINS), RESTRUCTURING CHARGES AND OTHER This note summarizes charges and gains from contingent consideration, restructuring, and acquisition expenses Contingent Consideration and Restructuring | Item | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Flexion contingent consideration | $1,509 | $(18,258) | $(2,297) | $(6,640) | | Restructuring charges | $996 | $936 | $6,531 | $936 | | Acquisition-related expenses | $230 | $709 | $404 | $1,198 | | Total | $2,735 | $(16,613) | $4,638 | $(4,506) | - In February 2024, the company initiated a restructuring plan to improve operational efficiencies, reshape its executive team, reallocate resources to the U.S. commercial portfolio, and reprioritize investments for Medicare reimbursement for EXPAREL under the NOPAIN Act[132] - Restructuring charges for the six months ended June 30, 2024, totaled $6.5 million, primarily related to employee termination benefits and contract termination costs[132][134] NOTE 15—COMMITMENTS AND CONTINGENCIES This note outlines ongoing legal proceedings, including patent suits and royalty disputes, and clinical commitments - The company is involved in MyoScience milestone litigation concerning $30.0 million in milestone payments, with a decision from the September 2023 trial pending[113][136] - Multiple patent infringement suits have been filed against eVenus Pharmaceutical Laboratories, Inc. regarding generic versions of EXPAREL, with a decision on the first case expected soon[114][115][116][140][141][163][164] - A lawsuit against Research Development Foundation (RDF) disputes EXPAREL royalty obligations; the company expects to receive $14.5 million from RDF following a partial summary judgment, with a trial for remaining issues scheduled for September 2024[118][119][142] - The FDA waived pediatric studies for brachial plexus interscalene nerve block, and discussions are ongoing with regulatory agencies for remaining pediatric commitments[120][166] - Up to $56.0 million in contingent milestone payments could become due upon the achievement of certain development and regulatory milestones for PCRX-201[144] NOTE 16—SUBSEQUENT EVENT This note highlights a subsequent event: FDA approval of a generic EXPAREL version in July 2024 - eVenus received FDA approval for a generic version of EXPAREL in July 2024, which is part of multiple ongoing and pending patent infringement litigations[167] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operational results, product portfolio, and liquidity and capital resources Overview This overview summarizes Pacira's non-opioid pain management business and recent strategic and financial developments - Pacira is a therapeutic area leader in non-opioid pain management, with EXPAREL, ZILRETTA, and iovera° as its core products[149] - In May 2024, the company completed a private placement of $287.5 million in 2029 convertible senior notes and repurchased $200.0 million of 2025 notes, resulting in a $7.5 million gain on early extinguishment of debt[174] - A new share repurchase program was announced in May 2024, authorizing up to $150 million, and 837,240 shares were repurchased for $25.0 million[174] - CMS proposed separate Medicare reimbursement (ASP + 6%) for EXPAREL in outpatient settings starting January 1, 2025, reflecting the NOPAIN Act[153] - EXPAREL was launched in two new lower extremity nerve blocks (adductor canal and sciatic nerve block in popliteal fossa) in February 2024[155] - PCRX-201 received Regenerative Medicine Advanced Therapy (RMAT) designation from the FDA in February 2024 for OA knee pain[235] - eVenus received FDA approval for a generic version of EXPAREL in July 2024[167] Product Portfolio and Internal Pipeline This section details clinical benefits, label expansion, and development programs for key products and pipeline - Pacira is pursuing innovative acquisition targets and strategic investments to build a pipeline of innovation complementary to its existing products, focusing on the neural pain pathway[194] - The company operates two Pacira Innovation and Training (PIT) facilities to advance education on best practice techniques for acute pain management and reduce opioid reliance[219] EXPAREL EXPAREL is a long-acting non-opioid analgesic with ongoing label expansion for pediatric and new nerve block indications - EXPAREL is indicated for local analgesia via infiltration in patients aged six years and older and regional analgesia via interscalene brachial plexus nerve block, sciatic nerve block in the popliteal fossa, and adductor canal block in adults[154] - In February 2024, EXPAREL was launched in two new lower extremity nerve blocks (adductor canal and sciatic nerve block in the popliteal fossa), supported by Phase 3 studies demonstrating four days of superiority to bupivacaine[155] - Planning is underway for a multicenter EXPAREL Phase 3 registration program as a stellate ganglion block for preventing postoperative atrial fibrillation after cardiothoracic surgery[156] - A Phase 1 pharmacokinetic study for EXPAREL as a single-dose post-surgical infiltration in patients under six years of age has been launched, and a second Phase 1 study for intrathecal analgesia was initiated in June 2023[176][177] ZILRETTA ZILRETTA is an extended-release intra-articular therapy for OA knee pain, with a Phase 3 study for shoulder OA - ZILRETTA is the first and only extended-release, intra-articular therapy for OA knee pain, providing significant pain relief for 12 weeks, with some patients experiencing relief through 16 weeks[159][205] - It employs a proprietary microsphere technology combining triamcinolone acetonide (TA) with a poly lactic-co-glycolic acid (PLGA) matrix for extended drug release[159] - A Phase 3 registration study has been launched to evaluate the safety and efficacy of ZILRETTA for the management of OA pain of the shoulder[198] iovera° iovera° is a non-opioid cryoanalgesia device for knee arthritis, with studies for lower back pain and spasticity - The iovera° system is an FDA 510(k) cleared non-opioid handheld cryoanalgesia device indicated for blocking pain and relieving symptoms associated with arthritis of the knee for up to 90 days[206] - Pivotal trial data showed iovera° treatment for knee OA pain provided relief up to 150 days, and for total knee arthroplasty (TKA) patients, it demonstrated reductions in opioid consumption and pain scores[207][209] - The company sponsors the Innovations in Genicular Outcomes Registry (iGOR) to track real-world outcomes for various knee OA treatments, including iovera°, ZILRETTA, and EXPAREL[209] - A pilot randomized control trial indicated iovera° significantly improved pain and disability for lower back pain compared to radiofrequency ablation, supporting the development of a longer Smart Tip[209] - A pivotal trial is currently underway to demonstrate the efficacy and safety of iovera° for treating spasticity[209] The Osteoarthritis Market Osteoarthritis affects over 32.5 million U.S. adults, highlighting a significant market need for treatments - Osteoarthritis (OA) affects over 32.5 million adults in the U.S., with symptomatic knee OA impacting 14 million individuals, nearly two million of whom are under the age of 45[210][211] - ZILRETTA and iovera° offer clinicians flexibility to individualize OA knee pain treatment based on patient factors, physician training, site of care, and reimbursement considerations[212] PCRX-201 PCRX-201, a gene therapy for OA pain, received RMAT designation and showed promising Phase 1 results - In February 2024, the FDA granted PCRX-201 a Regenerative Medicine Advanced Therapy (RMAT) designation for the treatment of OA pain of the knee, making it the first gene therapy product candidate to receive this designation for OA[235] - A Phase 1 proof-of-concept study of PCRX-201 in patients with moderate to severe OA of the knee showed it was well tolerated with efficacy observed through at least 52 weeks, with the highest efficacy achieved in the co-administered steroid group[193] - Given the encouraging Phase 1 data, the company is preparing to launch a second clinical study in knee OA[193] External Innovation Pacira pursues innovative acquisitions and strategic investments to expand its non-opioid pain management pipeline - The company is pursuing innovative acquisition targets that are complementary to EXPAREL, ZILRETTA, and iovera° to build out a pipeline of innovation to improve patients' journeys along the neural pain pathway[194] Pipeline of Innovation | Company | Development Stage | Description of Platform Technology | Potential Therapeutic Areas | | :----------------------- | :---------------- | :------------------------------------------------------------------------------------------------------------------------------------------- | :------------------------------------------ | | CarthroniX, Inc. | Phase 1-Ready | CX-011, a small molecule modulator of gp130 formulated as an IA injection designed to slow joint degeneration by mediating IL-6 cytokines | Knee OA | | Genascence Corporation | Phase 1b | Adeno-associated virus (AAV) based gene therapy engineered to deliver Interleukin-1 Receptor Antagonist (IL-1Ra) to target cells in joint(s) | Knee OA | | GQ Bio Therapeutics GmbH | Preclinical | High-capacity adenovirus (HCAd) based gene therapy engineered to deliver DNA to target cells in joint(s) and intervertebral disc(s) | Knee OA and degenerative disc disease (DDD) | | Spine BioPharma, LLC | Phase 3 | SB-01, a 7-amino acid chain peptide that binds to and induces down regulation of transforming growth factor, beta 1 (TGFβ1) | Degenerative disc disease (DDD) | Pacira Training Facilities Pacira operates two Innovation and Training facilities to advance education on acute pain management - The company maintains and operates two Pacira Innovation and Training (PIT) facilities in Tampa, Florida, and Houston, Texas, with the goal of advancing education on best practice techniques for effective acute pain management while reducing or eliminating the need for opioids[219] - These facilities provide clinicians with flexible, state-of-the-art environments for interactive, hands-on instruction on the latest local, regional, and field block approaches for pain management[219] Results of Operations This section compares financial performance for Q2 and H1 2024 vs 2023, analyzing revenues and expenses Revenues Total revenues increased by 5% for both periods, driven by product and royalty revenue growth | Metric | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | | :--------------------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | | EXPAREL | $136,852 | $135,127 | 1% | $269,282 | $265,535 | 1% | | ZILRETTA | $30,707 | $29,261 | 5% | $56,546 | $53,595 | 6% | | iovera° | $5,674 | $4,384 | 29% | $10,704 | $8,385 | 28% | | Bupivacaine liposome injectable suspension | $3,154 | $695 | 100%+ | $5,679 | $1,383 | 100%+ | | Total Net Product Sales | $176,387 | $169,467 | 4% | $342,211 | $328,898 | 4% | | Royalty Revenue | $1,636 | — | N/A | $2,929 | $910 | 100%+ | | Total Revenues | $178,023 | $169,467 | 5% | $345,140 | $329,808 | 5% | - EXPAREL revenue increased 1% in both the three and six months ended June 30, 2024, driven by a 3% increase in gross vial volume, partially offset by a shift in vial mix and a 1% increase in selling price net of allowances[241] - Total reductions of gross product sales from sales-related allowances and accruals were $73.1 million for the six months ended June 30, 2024, representing a 1.3% increase as a percentage of gross product sales, primarily due to higher chargeback-related allowances[226] Cost of Goods Sold Cost of goods sold decreased, increasing gross margin due to lower EXPAREL costs and reduced royalties | Metric | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | | :----------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | | Cost of goods sold | $44,262 | $48,207 | (8)% | $91,678 | $97,227 | (6)% | | Gross margin | 75% | 72% | | 73% | 71% | | - Gross margin increased three and two percentage-points in the three and six months ended June 30, 2024, respectively, primarily due to lower EXPAREL product cost and lower royalty expense, partially offset by higher inventory reserves[228] Research and Development Expenses Total R&D expenses increased, driven by new clinical trials, partially offset by manufacturing scale-up completion | Expense Category | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | | :------------------------------------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | | Clinical and preclinical development | $8,172 | $5,194 | 57% | $14,518 | $10,455 | 39% | | Product development and manufacturing capacity expansion | $7,318 | $9,305 | (21)% | $14,713 | $16,977 | (13)% | | Regulatory and other | $2,923 | $2,603 | 12% | $5,617 | $4,935 | 14% | | Stock-based compensation | $1,925 | $1,722 | 12% | $3,728 | $3,597 | 4% | | Total research and development expense | $20,338 | $18,824 | 8% | $38,576 | $35,964 | 7% | - Clinical and preclinical development expense increased significantly due to the start-up and enrollment in ZILRETTA shoulder, EXPAREL intrathecal, and EXPAREL pediatric trials, and start-up activities in an iovera° spasticity trial[230] - Product development and manufacturing capacity expansion expense decreased primarily due to the near-completion of pre-commercial scale-up activities for EXPAREL manufacturing capacity at the San Diego Science Center Campus[273] Selling, General and Administrative Expenses Total SG&A expenses increased, influenced by NOPAIN Act marketing and consulting, offset by restructuring | Expense Category | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | | :------------------------------------------------ | :----------------------------------------- | :----------------------------------------- | :---------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | | Sales and marketing | $39,047 | $37,462 | 4% | $78,482 | $79,041 | (1)% | | General and administrative | $20,231 | $19,591 | 3% | $44,837 | $40,464 | 11% | | Stock-based compensation | $8,848 | $7,797 | 13% | $16,833 | $16,188 | 4% | | Total selling, general and administrative expense | $68,126 | $64,850 | 5% | $140,152 | $135,693 | 3% | - Sales and marketing expense increased 4% in the three months ended June 30, 2024, driven by investments in programs to drive awareness and education for the NOPAIN Act implementation, partially offset by the February 2024 restructuring program[251] - General and administrative expense increased 3% and 11% in the three and six months ended June 30, 2024, respectively, primarily due to third-party management consulting and compensatory costs associated with the CEO transition, partially offset by lower legal fees[275] Amortization of Acquired Intangible Assets Amortization expense for acquired intangible assets remained consistent at $14.3 million and $28.6 million | Metric | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | | Amortization of acquired intangible assets | $14,322 | $14,322 | —% | $28,644 | $28,644 | —% | Contingent Consideration Charges (Gains), Restructuring Charges and Other The company recognized total charges due to restructuring and contingent consideration, contrasting prior year gains | Item | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | :---------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | | Flexion contingent consideration | $1,509 | $(18,258) | N/A | $(2,297) | $(6,640) | (65)% | | Restructuring charges | $996 | $936 | 6% | $6,531 | $936 | 100%+ | | Acquisition-related expenses | $230 | $709 | (68)% | $404 | $1,198 | (66)% | | Total | $2,735 | $(16,613) | N/A | $4,638 | $(4,506) | N/A | - During the three months ended June 30, 2024, a contingent consideration charge of $1.5 million was recognized due to revisions to discount rates, while a $2.3 million gain was recognized for the six months ended June 30, 2024, due to an adjustment in the probability of achieving a Flexion regulatory milestone[256] - Restructuring charges of $1.0 million and $6.5 million were recognized for the three and six months ended June 30, 2024, respectively, related to employee termination benefits and contract termination costs from the February 2024 restructuring plan[257] Other Income (Expense), Net Total other income, net, significantly increased, driven by interest income and a debt extinguishment gain | Metric | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | :---------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | | Interest income | $4,749 | $2,111 | 100%+ | $8,652 | $5,253 | 65% | | Interest expense | $(3,884) | $(3,865) | —% | $(7,200) | $(13,454) | (46)% | | Gain (loss) on early extinguishment of debt | $7,518 | — | N/A | $7,518 | $(16,926) | N/A | | Other, net | $(39) | $(269) | (86)% | $(198) | $(279) | (29)% | | Total other income (expense), net | $8,344 | $(2,023) | N/A | $8,772 | $(25,406) | N/A | - The substantial increases in interest income were due to higher interest rates and overall investment balances[283] - A $7.5 million gain on early extinguishment of debt was recognized in both periods in conjunction with the repurchase of $200.0 million principal of the 2025 Notes[284] - Interest expense decreased 46% for the six months ended June 30, 2024, primarily driven by lower principal outstanding and interest rates associated with the TLA Term Loan[260] Income Tax Expense Income tax expense increased significantly, with effective tax rates influenced by non-deductible compensation | Metric | 3 Months Ended Jun 30, 2024 (in thousands) | 3 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | % Increase / (Decrease) | | :-------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | :----------------------------------------- | :----------------------------------------- | :---------------------- | | Income Tax Expense | $17,698 | $12,091 | 46% | $22,359 | $5,153 | 100%+ | | Effective Tax Rate | 48% | 32% | | 45% | 45% | | - The effective tax rates for the three and six months ended June 30, 2024, include costs related to non-deductible stock-based compensation (primarily expired stock options) and non-deductible executive compensation, partially offset by tax credits[262] Liquidity and Capital Resources This section discusses the company's financial position, cash flow, debt, and future capital requirements - As of June 30, 2024, the company had cash and cash equivalents and available-for-sale investments totaling $404.2 million and working capital of $539.5 million[288] - The company expects its existing cash, cash equivalents, available-for-sale investments, and cash from product sales to be sufficient to fund operating expenses, capital expenditure requirements, and debt payments through the next 12 months[295] Summary of Cash Flows Net cash from operating activities increased, investing activities shifted, and financing activities provided cash | Activity | 6 Months Ended Jun 30, 2024 (in thousands) | 6 Months Ended Jun 30, 2023 (in thousands) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Net cash provided by operating activities | $102,337 | $62,627 | | Net cash used in investing activities | $(30,745) | $73,509 | | Net cash provided by financing activities | $22,163 | $(153,465) | | Net increase (decrease) in cash and cash equivalents | $93,755 | $(17,329) | - The $39.7 million increase in net cash provided by operating activities was attributable to increased revenue with favorable gross margins, lower interest paid, and a $13.0 million payment made in the prior year for a licensing agreement termination fee[309] - Net cash provided by financing activities for the six months ended June 30, 2024, primarily consisted of $287.5 million in proceeds from the issuance of 2029 Notes, partially offset by the repurchase of 2025 Notes, a capped call transaction, and treasury stock repurchases[266] Debt This section details the TLA Term Loan, 2029 and 2025 Convertible Senior Notes, and covenant compliance - The TLA Term Loan has a principal amount of $150.0 million, matures on March 31, 2028, and due to voluntary principal prepayments, no further principal payments are required until June 2026[268] - All $287.5 million principal of the 2029 Convertible Senior Notes, issued in May 2024, was outstanding as of June 30, 2024[313] - As of June 30, 2024, $202.5 million principal of the 2025 Convertible Senior Notes remained outstanding after a $200.0 million principal repurchase in May 2024, which resulted in a $7.5 million gain on early extinguishment of debt[294][314] - As of June 30, 2024, the company was in compliance with all financial covenants under the TLA Credit Agreement[313] Future Capital Requirements The company expects existing cash and sales to fund operations for 12 months, with future needs requiring financing - The company believes its existing cash and cash equivalents, available-for-sale investments, and cash received from product sales will be sufficient to fund operating expenses, capital expenditure requirements, and debt payments through the next 12 months[295] - Future capital requirements will depend on various factors, including global economic conditions, commercialization costs, strategic investments, clinical trials, milestone payments, manufacturing expansion, and legal/regulatory matters[295][316] Critical Accounting Estimates This section notes no significant changes to critical accounting policies or material impacts from recent pronouncements - There have been no significant changes to critical accounting policies or recently issued accounting pronouncements that are expected to have a material impact on financial results since December 31, 2023[317] Contractual Obligations This section states no material changes in contractual obligations from those reported in the 2023 Annual Report - There have been no material changes in contractual obligations relating to indebtedness, lease obligations, and purchase obligations from those reported in the 2023 Annual Report[318] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses market risks, focusing on interest rate risk from investments and debt, and credit risk - A hypothetical 100 basis point increase in interest rates would reduce the fair value of available-for-sale securities by approximately $0.7 million and increase interest expense on the TLA Term Loan by approximately $1.1 million over the next 12 months[319][299] - Accounts receivable are primarily concentrated with four large pharmaceutical wholesalers, posing a potential material adverse impact on financial condition, results of operations, or net cash flow in the event of non-performance or non-payment[300] - As of June 30, 2024, the estimated fair value of the 2029 Notes was $996 per $1,000 principal amount, and the 2025 Notes was $938 per $1,000 principal amount[298][320] Item 4. Controls and Procedures Management concluded disclosure controls were effective, with no material changes in internal control - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[301] - There have been no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during the quarter ended June 30, 2024[323] - Management acknowledges the inherent limitations on the effectiveness of controls, stating that a control system can provide only reasonable, not absolute, assurance[337] PART II. OTHER INFORMATION This section provides additional information not covered in financial statements, including legal proceedings and risk factors Item 1. Legal Proceedings This section refers to Note 15 for detailed information regarding the company's legal proceedings - Information related to legal proceedings is provided in Note 15, Commitments and Contingencies, to the condensed consolidated financial statements[338] Item 1A. Risk Factors This section states no material changes to risk factors previously disclosed in the 2023 Annual Report - There have been no material changes in the risk factors included in the company's 2023 Annual Report on Form 10-K[304] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activities under its publicly announced program | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Value of Shares that May Yet be Purchased Under the Plans or Programs | | :---------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :-------------------------------------------------------------------- | | May 1, 2024 – May 31, 2024 | 837,240 | $29.86 | 837,240 | $125,000,000 | | Total | 837,240 | $29.86 | 837,240 | $125,000,000 | - The company repurchased 837,240 shares of its common stock for a total cost of $25.1 million (inclusive of $0.1 million excise tax) in May 2024[72][325] - The Board of Directors authorized a share repurchase program in May 2024 for up to $150.0 million of outstanding common stock, with $125.0 million remaining as of June 30, 2024[99][325] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - This item is not applicable[346] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - This item is not applicable[306] Item 5. Other Information This section reports no director or executive officer adopted or terminated Rule 10b5-1 trading arrangements - During the quarter ended June 30, 2024, no director or executive officer of the company adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement'[327] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q - Exhibits include the Indenture for the 2.125% Convertible Senior Notes due 2029, the First Amendment to the Credit Agreement, the Form of Capped Call Transaction Confirmation, and various certifications (CEO, CFO, Sarbanes-Oxley Act)[341][347] Signatures This section contains the required signatures of the principal executive and financial officers for the 10-Q - The report is signed by Frank D. Lee, Chief Executive Officer and Director (Principal Executive Officer), and Charles A. Reinhart, III, Chief Financial Officer (Principal Financial Officer), on July 30, 2024[335]