PACIRA BIOSCIENCES, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)
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 in
the United States of America(GAAP) and in accordance with the rules and regulations of the United States Securities and Exchange Commission, or SEC. 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 defined below) 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 and United States, or U.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 of United States Food and Drug Administration, or FDA, supplemental New Drug Applications, or sNDAs, and premarket notification 510(k)s; the related timing and success of European 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 in San Diego, California; our ability to successfully complete a ZILRETTA capacity expansion project in Swindon, 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 the SEC.
Unless the context otherwise requires, references to “Pacira”, “we”, the “Company”, “us” and “our” in this Quarterly Report on Form 10-Q are to
Pacira BioSciences, Inc.| Q1 2022 Form 10-Q | Page 30 -------------------------------------------------------------------------------- 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. Our long-acting, local analgesic EXPAREL® (bupivacaine liposome injectable suspension) was commercially launched in April 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 the U.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 the U.S.In Europe, 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 10 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 (the "Flexion Acquisition") of Flexion Therapeutics, Inc.("Flexion") in November 2021, 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 of MyoScience, Inc.(the "MyoScience Acquisition") in April 2019, we acquired iovera°®, a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature only to targeted nerves, which we sell directly to end users. The iovera° system is highly complementary to EXPAREL as a non-opioid therapy that alleviates pain by disrupting pain signals being transmitted to the brain from the site of injury or surgery. We also believe ZILRETTA is highly complementary to iovera°. 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.
November 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 millionincluded an initial payment of $428.3 millionwhich represented $8.50in cash per share of Flexion common stock, $20.2 millionpaid to settle restricted stock units and in-the-money stock options, an $85.1 millioncash payment to repay Flexion debt that was not assumed by us and $45.2 millionin 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 $8.00in cash per share of Flexion common stock if certain milestones are met on or prior to December 31, 2030. Up to an additional $380.2 millionin 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 pandemic (COVID-19)
Since early 2020, our revenues have been impacted by the global pandemic caused by a novel strain of coronavirus (COVID-19) and 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. For instance, while many restrictions have since eased with COVID-19 vaccines now widely available, the elective surgery market faced additional pandemic-related challenges in August and
September 2021due to regional surges in COVID-19 variant cases, staffing shortages and fatigue from care teams addressing significant procedure backlogs, and in December 2021, the COVID-19 Omicron variant prompted some government restrictions on elective surgical procedures and created surgical staffing challenges, both of which began to ease in January 2022. Our manufacturing sites are operational and have safety protocols and Pacira BioSciences, Inc.| Q1 2022 Form 10-Q | Page 31
guidelines as recommended by federal, state and local governments. Indirect effects of the pandemic may include longer lead-times for or the inability to secure a sufficient supply of materials due to the prioritization by certain suppliers for COVID-19 vaccine manufacturing. The situation remains dynamic and subject to rapid and possibly material changes. Additional negative impacts may also arise from the COVID-19 pandemic 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 • In April 2022, the U.S. Patent and Trademark Officeissued Patent Nos. 11,304,904, and 11,311,486. The '904 and '486 patents have an expiration date of January 22, 2041and are listed in the FDA Approved Drug Products with Therapeutic Equivalence Evaluations (the "Orange Book"). With these two new patents, there are currently five EXPAREL patents listed in the Orange Book each with an expiration date of January 22, 2041. • We recently launched development plans for our second training facility in Houston, Texas. This 19,000 square-feet state-of-the-art facility will feature an adaptive lecture hall, broadcast studio and lab space for cadaver and other interactive workshops. Together with our Tampafacility, this second training center will play a core role in developing physician champions and community-based clinicians who want to stay on the forefront of opioid-sparing pain management. We expect to open the Houstonfacility before the end of 2022 to host programs for EXPAREL, ZILRETTA and iovera°.
U.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 are advancing two Phase 3 studies of EXPAREL as a nerve block in lower extremity surgeries. One is a popliteal sciatic nerve block for bunionectomy and the second is an adductor canal block for total knee arthroplasty, or TKA. We believe positive results from these studies will form the basis for an sNDA submission seeking label expansion to include lower extremity nerve blocks. We believe the addition of this indication is significant as anesthesia-driven regional approaches using nerve and field blocks continue to expand as institutional protocols. •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
European Medicines Agency, or EMA, with the goal of harmonizing our pediatric clinical studies as much as possible between the two regions. •Stellate ganglion block. We believe a long-acting stellate ganglion block with EXPAREL has the potential to be an effective approach for managing ventricular tachycardia (commonly referred to as "electrical storm"), a life-threatening clinical condition characterized by the recurrence of hemodynamically unstable ventricular tachycardia and/or ventricular fibrillation. We are planning a multi-center registration study to evaluate EXPAREL as a stellate ganglion block for managing electrical storm. We are also supporting an investigator-initiated study that will evaluate iovera° as a longer-acting stellate ganglion block. •Global expansion. We have prioritized the European and Latin American markets for global expansion. In Europe, we were granted marketing authorization by the EC in November 2020for 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- Pacira BioSciences, Inc.| Q1 2022 Form 10-Q | Page 32 -------------------------------------------------------------------------------- Table of Contents operative pain from small- to medium-sized surgical wounds in adults. We launched EXPAREL in the U.K.and targeted E.U. countries in the fourth quarter of 2021. In Latin America, we have a distribution agreement with Eurofarma 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 in Latin America, including Argentina, Brazil, Colombiaand Mexico. 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 was approved by the FDA in
October 2017and launched in the U.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 unique OA treatment options to individualize patient care. ZILRETTA is the first and only extended-release, intra-articular therapy for patients confronting 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 IA 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 comparative safety study of ZILRETTA in patients with Type 2 diabetes and are evaluating a repeat dosing study. 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 the U.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 amongst 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. In September 2021, the American Association of Orthopaedic Surgeons, or AAOS, updated its evidence-based clinical practice guidelines, finding ZILRETTA can improve patient outcomes over traditional immediate-release corticosteroids.
The iovera° system is an FDA-approved, non-opioid handheld cryoanalgesia device used to produce precise, controlled doses of cold temperature only to targeted nerves. It has been FDA 510(k) cleared in the
U.S., has a CE mark in the E.U. and is cleared for marketing in Canadafor 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 results demonstrated reductions in opioids, including:
Pacira BioSciences, Inc.| Q1 2022 Form 10-Q | Page 33 -------------------------------------------------------------------------------- Table of Contents •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 compared to their baseline pain scores at 72 hours (p
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 damaging the surrounding tissues;
•iovera° is a convenient handheld device with a single-use, procedure-specific Smart Tip; and
•iovera° can be delivered with precision using ultrasound guidance or an anatomical landmark.
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
July 2021, we entered into a licensing agreement with Verve Medical Products, Inc.for the distribution of iovera° in Canada. We began selling iovera° in Canadain 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 the
CDC, OA affects over 32.5 million adults in the U.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 the U.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.| Q1 2022 Form 10-Q | Page 34 -------------------------------------------------------------------------------- Table of Contents Clinical Development Programs
PCRX-201 and PCRX-301 (formerly FX-201 and FX-301)
PCRX-201 and PCRX-301 were 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. 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.
Clinical programs based on pMVL
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-dose bupivacaine-pMVL for extended pain relief and (iii) a low-dose bupivacaine-pMVL for intrathecal analgesia. We are planning to initiate a Phase 2 study for low-dose bupivacaine-pMVL for intrathecal analgesia in late 2022.
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 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. Preclinical to slow joint degeneration by mediating IL-6 Knee OA
platform to reverse the outlier
Coda Therapeutics, Inc. Preclinical neuronal
underlying neurological activity Neuropathic pain
disorders using optimized Adeno-Associated Virus (AAV) vectors Genascence Corporation Phase 1 AAV vector-based gene therapy targeting Knee OA Interleukin 1
Receptor antagonist (IL-1Ra)
gene transfer vehicles than OA and others
expression Remedisc 7-amino acid chain peptide that binds Spine BioPharma, LLC Phase 3-ready to and induces
downregulation of degenerative disc disease transformation
growth factor, beta 1 (TGF?1)
Pacira BioSciences, Inc.| Q1 2022 Form 10-Q | Page 35 -------------------------------------------------------------------------------- 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-20220331_g2.jpg]] * Study designs have not been finalized for infiltration in pediatric patients aged 0 to 6 years old or for nerve block in pediatric patients. - NOCITA® is a registered trademark of Aratana Therapeutics, Inc., a wholly owned subsidiary of Elanco Animal Health, Inc. Pacira BioSciences, Inc.| Q1 2022 Form 10-Q | Page 36 -------------------------------------------------------------------------------- Table of Contents Pacira Innovation and Training Centerof TampaIn October 2020, we opened the Pacira Innovation and Training center of Tampa(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 to 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 cost to the organization, PITT also serves as a venue for national anesthesia provider organizations to hold their own workshops and training sessions to educate healthcare providers.
We have launched development plans for a second training facility in
Houston, 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 open this facility before the end of 2022 which would immediately double our capacity and ability to host programs for EXPAREL, ZILRETTA and iovera°.
Comparison of the three months ended
Net product sales consist of (i) EXPAREL in the
U.S., the European Union, or E.U., and the United Kingdom, or U.K.; (ii) ZILRETTA in the U.S.; (iii) iovera° in the U.S., Canadaand the E.U. and (iv) sales of, and royalties on, our bupivacaine liposome injectable suspension for veterinary use.
The following table provides information about our revenues during the periods indicated, including percentage changes (amounts in thousands of dollars):
Three months completed
2022 2021 (Decrease) Net product sales: EXPAREL
$ 129,205 $ 114,67813% ZILRETTA 23,635 - N/A iovera° 3,026 3,268 (7)% Bupivacaine liposome injectable suspension 1,556 792 96% Total net product sales 157,422 118,738 33% Royalty revenue 569 289 97% Total revenues $ 157,991 $ 119,02733% EXPAREL revenue increased 13% in the three months ended March 31, 2022versus 2021 primarily due to increases of 11% in gross vial volume and increases of 4% in gross selling price per unit, 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 faced Pacira BioSciences, Inc. | Q1 2022 Form 10-Q | Page 37
additional pandemic-related challenges in
January 2022due 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.
Following the acquisition of Flexion, we acquired ZILRETTA in
Net product sales of iovera° decreased 7% in the three months ended
March 31, 2022versus 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.
Net sales of bupivacaine liposome suspension for injection products and associated royalties increased 96% and 97%, respectively, in the three months ended
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 ongoing 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 three months ended
March 31, 2022and 2021 (in thousands): Volume Returns Prompt Payment Service Rebates and Government March 31, 2022 Allowances Discounts Fees Chargebacks Rebates Total Balance at December 31, 2021 $ 3,361 $ 1,178 $ 3,636 $ 3,494 $ 761 $ 12,430Provision 404 2,655 3,949 9,392 348 16,748 Payments / Adjustments (856) (2,608) (4,031) (8,473) (401) (16,369) Balance at March 31, 2022 $ 2,909 $ 1,225 $ 3,554 $ 4,413 $ 708 $ 12,809Volume Returns Prompt Payment Service Rebates and Government March 31, 2021 Allowances Discounts Fees Chargebacks Rebates Total Balance at December 31, 2020 $ 1,023 $ 1,007 $ 1,168 $ 1,600$ - $ 4,798Provision 249 2,365 1,785 2,726 - 7,125 Payments / Adjustments (111) (2,349) (1,953) (2,582) - (6,995) Balance at March 31, 2021 $ 1,161 $ 1,023 $ 1,000 $ 1,744$ - $ 4,928Total reductions of gross product sales from sales-related allowances and accruals were $16.7 millionand $7.1 million, or 9.7% and 5.7% of gross product sales, for the three months ended March 31, 2022and 2021, respectively. The overall increase in sales-related allowances and accruals as a percentage of gross product sales was directly related to the addition of the ZILRETTA-related allowances and accruals. Pacira BioSciences, Inc. | Q1 2022 Form 10-Q | Page 38
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 March 31, % Increase / 2022 2021 (Decrease) Cost of goods sold
$ 36,074$ 31,349 15% Gross margin 77 % 74 % Gross margin increased three percentage points in the three months ended March 31, 2022versus 2021, mainly due to lower cost of EXPAREL product sold due to higher production levels and downtime that occurred in 2021, partially offset by the ZILRETTA step-up of fixed assets and inventory to fair value in purchase accounting.
Research and development costs
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 breakdown of our research and development expenditures during the periods indicated, including percentage changes (amounts in thousands of dollars):
Three months completed
March 31, % Increase / 2022 2021 (Decrease) Clinical and preclinical development
4,993 4,702 6% Regulatory and other 1,714 2,051 (16)% Stock-based compensation 1,458 1,106 32% Total research and development expense
$ 21,605$ 15,879 36% % of total revenues 14 % 13 %
Total research and development expenditure increased by 36% in the three months ended
Clinical and preclinical development expense increased 68% in the three months ended
March 31, 2022versus 2021 due to the start-up of and continued enrollment in two EXPAREL lower extremity nerve block trials in bunionectomy and TKA and ongoing trials for the product candidates acquired as part of the Flexion Acquisition. Product development and manufacturing capacity expansion expense increased 6% in the three months ended March 31, 2022versus 2021 mainly attributable to the scale-up of our manufacturing capacity at our Science Center Campus in San Diego, California. Regulatory and other expense decreased 16% in the three months ended March 31, 2022versus 2021 due lower ongoing costs in the first quarter 2022 related to our iovera° clinical data registry, as compared to start-up expenses incurred in the first quarter of 2021. Pacira BioSciences, Inc.| Q1 2022 Form 10-Q | Page 39
Stock-based compensation increased 32% in the three months ended
March 31, 2022versus 2021 primarily due to greater equity awards outstanding for research and development personnel.
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.
The following table provides information about our selling, general and administrative expenses during the periods indicated, including percentage changes (amounts in thousands of dollars):
Three months completed
March 31, % Increase / 2022 2021 (Decrease) Sales and marketing
$ 38,440$ 27,102 42% General and administrative 17,441 13,868 26% Stock-based compensation 8,379 7,552 11% Total selling, general and administrative expense $ 64,260$ 48,522 32% % of total revenues 41 % 41 %
Total selling, general and administrative expenses increased by 32% in the quarter ended
Sales and marketing expenses increased 42% in the three months ended
March 31, 2022versus 2021. The increases were driven by a sales force expansion supporting iovera°, the addition of a sales force to support ZILRETTA and fully staffing a contracted sales force in Europe. 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 in Tampa, Florida. We expect that the addition of ZILRETTA to our commercial portfolio will increase our sales and marketing spend in 2022 as we increase the size of our ZILRETTA and iovera° sales force, which is providing clinicians with two unique OA treatment options to individualize patient care and patient reimbursement support for ZILRETTA. General and administrative expenses increased 26% in the three months ended March 31, 2022versus 2021 due to administrative support costs as a result of the Flexion Acquisition in November 2021, legal costs to support intellectual property protection and additional support for our expansion into European markets. Stock-based compensation increased 11% in the three months ended March 31, 2022and 2021 primarily due to an increase in the number of equity awards outstanding for selling, general and administrative personnel.
Amortization of acquired intangible assets
The following table provides a summary of the amortization of intangible assets acquired during the periods indicated, including percentage changes (amounts in thousands of dollars):
Three months completed
2022 2021 (Decrease) Amortization of acquired intangible assets
$ 14,322 $ 1,967100% + Amortization of acquired intangible assets increased substantially in the three months ended March 31, 2022versus 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, Goodwilland Intangible Assets, to our condensed consolidated financial statements included herein. Pacira BioSciences, Inc. | Q1 2022 Form 10-Q | Page 40 -------------------------------------------------------------------------------- Table of Contents Acquisition-Related Charges, Product Discontinuation and Other
The following table provides a summary of the costs related to the Flexion acquisition, the MyoScience acquisition, termination costs and other activities during the periods indicated, including percentage changes (amounts in thousands of dollars) :
Three Months Ended March 31, % Increase / 2022 2021 (Decrease) Acquisition-related charges (gains)
$ 4,337 $ (1,127)N/A Other - 3,000 (100)%
Total acquisition, product discontinuation and other expenses
$ 4,337 $ 1,873100% + During the three months ended March 31, 2022, we recognized acquisition-related charges of $4.3 million. These charges are primarily driven 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, which were partially offset by credits from changes in the fair value of contingent consideration related to the Flexion Acquisition and MyoScience Acquisition. For more information, see Note 15, Acquisition-Related Charges, Product Discontinuation and Other, to our condensed consolidated financial statements included herein. In the three months ended March 31, 2021, as part of the MyoScience Acquisition, we recognized gains in the amount of $1.1 millionrelated to changes in the fair value of contingent consideration. See Note 10, Financial Instruments, to our condensed consolidated financial statements included herein, for information regarding the methods and key assumptions used in the fair value measurements of contingent consideration. In June 2018, we entered into an agreement with Nuance Biotech Co. Ltd.to advance the development and commercialization of EXPAREL in China. In April 2021, we agreed to a mutual termination of the agreement due to the lack of a viable regulatory pathway that adequately safeguarded our intellectual property against the risk of a generic product. Dissolution costs of $3.0 millionwere included in other operating expenses in the condensed consolidated statements of operations for the three months ended March 31, 2021.
Other income (expenses)
The following table provides information on other expenses, net during the periods indicated, including percentage changes (amounts in thousands of dollars):
Three Months Ended March 31, % Increase / 2022 2021 (Decrease) Interest income
$ 271 $ 415(35)% Interest expense (10,246) (6,971) 47% Other, net (124) (157) (21)% Total other expense, net $ (10,099) $ (6,713)50% Total other expense, net increased 50% in the three months ended March 31, 2022versus 2021 primarily due to the increase in interest expense. The 47% increase in interest expense during the three months ended March 31, 2022was due to the $375.0 millionterm loan B credit agreement (the "Term Loan") entered into in December 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. 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. Pacira BioSciences, Inc. | Q1 2022 Form 10-Q | Page 41
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 March 31, 2022 2021 % Increase / (Decrease) Income tax expense
$ 466$ 2,355 (80)% Effective tax rate 6 % 19 % For the three months ended March 31, 2022and 2021, we recorded income tax expense of $0.5 millionand $2.4 million, respectively, which represented the estimated annual effective tax rate applied to the year-to-date domestic operating results adjusted for certain discrete tax benefits related to equity compensation.
Cash 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 in
November 2021and iovera° as part of the MyoScience Acquisition in April 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 of March 31, 2022, we had an accumulated deficit of $157.8 million, cash and cash equivalents and short-term available-for-sale investments of $452.2 millionand working capital of $361.9 million. The COVID-19 pandemic could continue to result in a reduction of certain commercial and clinical expenditures which could offset a portion of the potential revenue declines caused by the COVID-19 pandemic. We currently expect that our cash, short-term and long-term investments on hand will be adequate to cover any potential short-term liquidity needs, and that we would be able to access other sources of financing should the need arise. In March 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 millionfor the year ended December 31, 2020and remitted $1.4 millionin December 2021. The remaining $1.4 millionis due by December 31, 2022.
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