Pacira BioSciences: Not Done Yet Despite Devastating Share Price Losses

seekingalpha11-26 02:25

Pacira BioSciences markets and sells EXPAREL, a non-opioid pain relief therapy.The drug drives revenues of >$500m per annum, but a new generic version has been approved, while Pharma giant Vertex is ...

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(NASDAQ:PCRX) stock currently trades at a value of $18, although in 2015 it traded at $115 per share, and in March 2022, >$75 per share. Since then, the stock has been in near-constant decline, falling to a low of ~$13 in mid-August, before mounting a slight recovery, to today's price, which values the company at a market cap of $810m. According to Pacira's Q3 2024 quarterly report/10-Q submission:  Our long-acting, local analgesic EXPAREL® (bupivacaine liposome injectable suspension) 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 the U.S., EXPAREL is a long-acting, non-opioid option proven to manage postsurgical pain. EXPAREL is the only product 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. In Europe, EXPAREL is approved as a brachial plexus block or femoral nerve block for the treatment of post-operative pain in adults, and as a field block for the treatment of somatic post-operative pain from small- to medium-sized surgical wounds in adults and children aged six years and older.  In 2021, Pacira acquired Flexion Therapeutics, giving it access to Zilretta, which it calls: the first and only extended-release, intra-articular, or IA, injectable 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, platelet-rich plasma injections, or other early intervention treatments Finally, via in 2019 acquisition of MyoScience, Pacira gained access to 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.\"   Pacira income statements historic (Seeking Alpha)If we look at Pacira's historical income statements, above, the picture seems encouraging - revenue growth in every year, from 2014 to 2023, and positive operating income in every year since 2018.   Pacira net income / EPS historic (Seeking Alpha)If we look at net income and earnings per share (\"EPS\"), the picture is not so positive. Since earning $3.41 in 2020, EPS has been $0.95, $0.35, and $0.91. Year-to-date, Pacira reported that as of Q3 GAAP net loss has been $(115.6m), and EPS $(2.5), compared to $0.37 in the prior year period. Revenues for full-year 2024 have been forecast by management to be $680m - $705m - potentially implying a first failure to grow year-on-year in more than a decade - non-GAAP gross margin 74% - 76%, non-GAAP R&D expenses $70 - $80m, non-GAAP SG&A $245 - $265m, and stock-based compensation $50 - $55m. Key Factors Driving Revenue, Profit, and Share Price Declines - Generic Competition EXPAREL is the main breadwinner in Pacira's portfolio, driving $537m and $538m of revenues in 2022 and 2023 respectively, while Zilretta earned $106m, and $111m, and Iovera $15m and $20m. Year-to-date, EXPAREL has earned $401m of revenues, compared to $394m in the prior year period, Zilretta $85m, versus $82m in the prior year period, and Iovera $16.4m, compared to $13.6m. In short, none of Pacira's products are showing much revenue growth, nor much in the way of profitability - although it should be noted the company recorded a $163m goodwill impairment charge related to a key court case in Q3. With that figure, plus stock-based compensation of $39m, and amortisation of $43m added back in, plus some other items, non-GAAP EPS came to $2.45, versus $2.1 in the prior year period. On a non-GAAP basis, the forward price-to-earnings ratio looks to be in the region of 5.5x, while price to sales ratio is ~1.2x, which are both very low ratios that suggest either Pacira is substantially undervalued, or that there are significant operational risks to consider. A major threat to Pacira comes from generic competitors to EXPAREL. As per its Q3 10Q submission: During the three months ended September 30, 2024, the FDA approved a generic competitor to EXPAREL and a U.S. District Court ruled that one of our patents was not valid. This explains the Q3 impairment charge. A company called eVenus - a subsidiary of Jiangsu Hengrui Pharma, whom Pacira has been battling in the courts since 2021, secured the approval for generic EXPAREL in July of this year, and after the patent ruling, Pacira stock fell from $22 - $11 per share. When a generic is approved it is a triple whammy of bad news for the copied drug - firstly, its patents are no longer deemed valid and offer no further protection, secondly, it has a major new competitor in the market it cannot really claim superiority too, given it's the same underlying drug, and thirdly, the generic will be priced much lower than the original, meaning the manufacturers of the original will have to drop its own price or risk losing a greater proportion of market share. Pacira insists that eVenus and other generics may not impact sales of EXPAREL today, and even in the longer term, as Chief Executive Officer (\"CEO\") Frank Lee told analysts on the Q3 earnings call: We shouldn't jump too far ahead, as we've mentioned, we believe that in order for a generic to be successful, there are multiple layers of patents that need to be overcome. And as we mentioned, we not only have the 495, the 574, but we are continuing to innovate, as I mentioned earlier. So stay tuned on that. Some analysts have speculated that a fresh legal challenge from Pacira would trigger an automatic \"30-month stay\", effectively delaying eVenus' generics market entry for two and a half years, and even that failure to successfully challenge EXPAREL's other patents could result in EXPAREL being patent protected until 2041. Management also speculated on the earnings call that the price of EXPAREL may have to drop 15%-20% as a result of generic triggered price erosion, but with no other (known) Abbreviated New Drug Applications (\"ANDA's\") being filed, and eVenus product not yet launched, it's possible the market is overplaying the risk of generic competition at this time. Key Factors Driving Revenue, Profit, and Share Price Declines - Vertex's New Product Suzetrigine In its 2023 10K, Pacira lists competition for EXPAREL including \"opioids such as morphine, fentanyl, meperidine and hydromorphone\", \"Ketorolac, an NSAID\", \"Caldolor (ibuprofen for injection)\", and currently marketed \"non-opioid products such as bupivacaine, marcaine, ropivacaine and other anesthetics/analgesics\". Pacira goes on to mention that: Additional products may be developed for the treatment of acute pain, including new injectable NSAIDs, oral NaV1.8 pain signal inhibitors, novel opioids, new formulations of currently available opioids and NSAIDs, long-acting local anesthetics and new chemical entities as well as alternative delivery forms of various opioids and NSAIDs. Suzetrigine is a NaV1.8 pain signal inhibitor being developed by Boston-based Vertex Pharmaceuticals Incorporated (VRTX), to treat moderate to severe acute pain. Vertex expects to hear from the FDA by the end of January if suzetrigine will be approved in this indication. Vertex views its drug as a multi-billion dollar revenue opportunity and Phase 3 clinical studies have shown it is more effective at treating post-operative pain than placebo, albeit not more so than a combination of the opioid hydrocodone and acetaminophen, more commonly known as Vicodin. Nevertheless, an approval is likely, and Suzetrigine represents - I would say - a substantial threat to Pacira's market share over the next decade. Its major competition up to this point has arguably been Heron Therapeutics, Inc. (HRTX) Zynrelef, which came to market last year after several FDA rejections, and earned only $17m of revenues year-to-date. One positive that ought to provide a boost for EXPAREL, Suzetrigine, and Zynrelef is the new \"NOPAIN\" legislation, signed into law by the Biden administration - according to Pacira's 2023 10K: The NOPAIN Act is preventative legislation aimed at tackling the opioid crisis by incentivizing the use of non-opioids to manage surgical pain for Medicare patients treated in ASC and hospital outpatient department, or HOPD, settings. This federal mandate requires Medicare to reimburse for non-opioid products, such as EXPAREL, used during all surgeries conducted in the ASC or hospital outpatient department (HOPD) setting. Reimbursement is set at average selling price (\"ASP\") +6%, and Pacira estimates (in a recent corporate presentation) that the ruling opens up a reimbursement pathway for 18m procedures in HOP and ambulatory settings. Analysis - Pacira has Problems But Is Sell-Off Overblown? As of Q3, Pacira reported cash and equivalents of $246m and short-term marketable securities of $208m, so the company remains well-funded, and will even report a respectable net income figure on an adjusted / non-GAAP basis in 2024. Pacira's share price was declining well before this year's generic EXPAREL approval and adverse patent ruling, probably because revenues were not growing while profits were somewhat meagre, but also because its attempts to diversify away from EXPAREL had not succeeded. Zilretta and Iovera revenues have not grown as management may have hoped, and may never drive much more than ~$150m per annum, which heaps pressure on EXPAREL, itself under threat from generics and competing products. Even if the generic threat may be overblown, with only one approved product that does not yet have a launch date, and indeed, may not ever launch, the threat from suzetrigine does feel significant, although its failure to meet secondary endpoints in its pivotal studies, suggesting it is no more effective than Vicodin. In its own pivotal study, EXPAREL outperformed opioid drugs in patients receiving hemorrhoidectomy. It's therefore tempting to conclude that Pacira stock does not really deserve to have suffered such a correction - traditionally profitable companies generating >$600m per annum of revenues tend to be valued higher - for example, my research shows that the average market cap valuation of listed companies in the biotech, healthcare of Pharma sectors is ~$2.2bn. The issue is where Pacira's next phase of growth may be coming from. Although EXPAREL could - in my view at least - keep driving revenues >$500m per annum until 2030, its revenues across the past quarters and years suggest it may have reached a ceiling - and NOPAIN ruling aside, it is hard to see how Pacira reignited the growth of its flagship product. In my view, Pacira's punishment from Mr. Market may have come too early, but, because of its failure to diversify away from EXPAREL, it could end up being a fitting punishment, nonetheless, because of the twin threat of generics and suzetrigine. Once the market sees a threat, it rarely pushes a company's valuation back up while the threat remains in play, and therefore because suzetrigine will probably make it to market, and because a generic EXPAREL will one day be launched and force Pacira to drop its prices, Pacira's share price will be under constant pressure. With that said, Pacira's rivals also face threats - an FDA rejection for suzetrigine, or an approval followed by less than expected uptake, in the case of Vertex, and delays to launch in the case of eVenus - potentially deterring other generic companies from filing ANDA's. Meanwhile, with NOPAIN potentially giving Pacira a boost in 2025 revenues-wise, I am prepared to go against the grain and make Pacira stock a \"Buy\".  Once the rot sets in for a biotech company (e.g., a product stops growing revenues, new products don't take, competitive threats emerge) the effect on a company and its share price can be terminal. But I don't think we have reached that stage yet with Pacira - the only company to have enjoyed sustained success in the non-opioid pain market - and therefore I hope to see some upside in 2025… a positive legal development, or better-than-expected earnings, for example, can deliver some deserved gains in the company valuation.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2486055262"}