Company Overview: Pacira BioSciences, Inc. (NASDAQ: PCRX) offers non-opioid aching management and re-forming health outcomes for improving the result for doctors and their patients. The company’s leading product, EXPAREL® was commercially unveiled in April 2012. EXPAREL® uses DepoFoam® and is presently indicated for single-dose infiltration to harvest postsurgical local analgesia. Since 2011, when the drug received its initial approval for single-dose infiltration, greater than 6 Mn patients have been treated to date with EXPAREL. In April 2019, the company bought iovera® system, to deliver an exact, controlled application of cold temperature only to targeted nerves.

 

PCRX Details
 

 
Higher Investments & PCRX’s EXPAREL® Product are key Catalysts: A pharmaceutical company, Pacira BioSciences, Inc. (NASDAQ: PCRX) has its headquarters in Parsippany, New Jersey, and is engaged in the expansion, commercialization and production of proprietary pharmaceutical products mainly used in hospitals and ambulatory surgery centers. These products are advanced using the company's branded DepoFoam drug delivery-based technology.  EXPAREL® is the company’s top product, unveiled in 2012. It is a liposome injection of bupivacaine, computed for single-dose penetration in adults. In 2017, the company entered into an agreement with DePuy Synthes Sales Inc. to market and endorse the use of EXPAREL® for orthopedic procedures in the United States' market. The partnership is expected to significantly expand the use of EXPAREL® across a wide range of surgical procedures. In FY2019, the company generated net product sales from EXPAREL® of ~$407.9 million. 

 
In 2019, the company reported total revenues of $421 million, up from $337.3 million in FY18. The company’s top-line mainly encompasses product revenues, other product sales and royalty revenues. Notably, in April last year, PCRX acquired privately held MyoScience, Inc, to add the latter’s iovera system to its portfolio, which is extremely complementary to EXPAREL® as a non-opioid therapy. Furthermore, Pacira altered its name to Pacira BioSciences subsequent to the buyout of MyoScience.
 
In 1QFY20, both the revenues and earnings increased year over year. Over a period of 2015 to 2019, the company has reported top-line CAGR growth of 14% with revenue in 2015 and 2019, amounting to $248.99 million and $421.03 million, respectively. The company has been investing in new technology to manufacture EXPAREL®, for the expansion of advanced manufacturing procedures and the use of specific processing equipment. The company has a strong balance sheet, with total cash balance amounting to $356.7 million at the end of FY2019, up from $172.4 million at the end of FY15. 
 

Past Performance Highlights (Source: Thomson Reuters)
 
PCRX stated that its phase 4 study of EXPAREL® in patients undertaking C-section achieved a 52% reduction in total opioid consumption while continuing pain through 72 hours, in January this year. Apart from being efficient and safe, the company’s EXPAREL® brings health economic assistance that plays a vital role in formulary decision making that are often unnoticed. Last year in December, the company had revealed positive top-line data from its phase III “PLAY” study of EXPAREL® run as a single-dose penetration in pediatric patients experiencing spinal or cardiac surgeries.
 
Going forward, the company is expanding use of EXPAREL® in key surgical settings and across new indications and ex-US markets. It also remains on track to drive awareness and broadening access to opioid-sparing solutions. The company has an excellent safety profile, with over 6 million patients treated to date. Prior to the COVID-19 pandemic, the company witnessed a growing demand for EXPAREL® on a year-over-year basis, with growth rates being more than 20% in January and February. Precisely, with the strategic partnership with anesthesia community, the company saw robust demand with EXPAREL®-based nerve and field blocks, driving education and training in regional methods.

 
The company remains on track to solidify its long-term plan as a top provider of advanced non-opioid pain management and regenerative health solutions. It further opines that the strong fundamentals of its business will continue to fuel its long-term expansion. It is worth mentioning that the company is well poised to ramp up as elective surgery restrictions lift across the states and ambulatory centers. The move will satisfy the backlog of patients who need surgery with augmented resources and hours of operation.
 
1QFY20 Key Highlights for the Period Ended 31 March 2019: During the quarter, the company reported total revenues of $105.7 million, up 16% from the prior corresponding figure of $91.3 million. First-quarter earnings stood at 53 cents per share, increasing from the year-ago figure of 22 cents. During the quarter, EXPAREL® net product sales increased 12% year over year and came in at $101.3 million. EXPAREL® suspension sales for the quarter stood at $1.2 million, up from the year-ago figure of $0.3 million. The newly added product iovera system recorded sales worth $2.3 million in 1QFY20. Notably, revenues from royalty stood at $0.9 million, up 125% from the prior corresponding period.

 

Key Highlights (Source: Company Reports)
 
1QFY20 Operating Highlights: Research and development (R&D) expenses stood at $15.8 million, an increase from $14.4 million reported in 1QFY19. Selling, general and administrative (SG&A) expenses decreased from $47.3 million year over year to $44.8 million in the reported quarter.
 
Strong Balance Sheet: At the end of 1QFY20, the company’s cash, cash equivalents and investments came in at $353.6 million, up from $291.95 million as at 31 December 2019. Total assets at the end of 31 March 2020, came in at $821.4 million, as compared to $831.1 million at the end of 31 December 2019. In 1QFY20, cash flow from operating activities stood at $6.2 million, up from $3.5 million reported in the year-ago period.
 

Cash Highlight (Source: Company Reports)
 
Recent News: On May 4, 2020, the company appointed Donald C. Manning, M.D., Ph.D., as the company’s Chief Medical Officer, effective immediately. Dr. Manning has vast experience of more than 20 years in biopharmaceutical executive leadership. In his new position, Dr. Manning will be of  great value to the company for the development of commercial and clinical non-opioid pain management portfolio.
 
Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 53.79% of the total shareholding. BlackRock Institutional Trust Company, N.A. and The Vanguard Group, Inc. Investors hold the maximum interests in the company at 14.8% and 10.41%, respectively.
 

Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)
 
Key Metrics: The Company reported Mar’20 EBITDA margin at 17.3%, higher than the industry median of 14.4%. Net margin, during Mar’20 stood in at 7.7%, as compared to the industry median of -7.5%. Operating margin during the same period came in at 16.2% as compared to the industry median of -1.1%. Quick ratio and current ratio for Mar’20 came in at 4.63x and 5.37x, higher than the industry median of 1.67x and 2.94x, respectively. The company has ROE of 2.2% in Mar’20 as compared to an industry median of -0.8%.
 

Key Metrics (Source: Refinitiv, Thomson Reuters)
 
Key Risks: The company’s success depends mainly on its capability to positively commercialize EXPAREL®, which are subject to many internal and external challenges. If the company does not come out strongly in a timely manner, its future revenues and profits could be adversely impacted. Further, rising competition from other pharmaceutical and biotechnology companies remains a matter of concern.
 
Industry Outlook: Players in the healthcare sector are poised to benefit from the evolving healthcare landscape, a shift in the global market, adoption of new and innovative business models, investing in new technologies, increased investments in personalized medicines and pursue external partners and collaborators for harmonizing strengths. In recent years, scientific and technological innovations have made it feasible to create personalized therapies. Enhanced focus on adopting and exchanging information via the use of health IT, improving overall patient outcomes and investment in developing and emerging markets are few positives for these pharmaceuticals’ companies. PCRX stands to benefit from this market momentum.
 
Although due to the widespread COVID-19 outbreak, Pacira does not have enough visibility to estimate its hostile effect, the company is taking the necessary steps to expand EXPAREL®’s label, which should boost demand for the drug in the coming years. As a result, the company has temporarily withdrawn its FY20 financial outlook. However, the company opines that reduction in expenditure resulting from COVID-19 will somewhat lessen the negative revenue impact of the pandemic.
 

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
 
 
EV/Sales Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of PCRX closed at $41.01 with a market capitalization of ~$1.7 billion. The stock made a 52-week low and high of $27.46 and $51.35, respectively, and is currently trading slightly below the average of its 52-week trading range. The stock has given a return of ~20.5% in the last one month. The business witnessed decent first-quarter results with both top-line and bottom-line increasing on a year over year basis. Over the period of FY15-FY19, total revenue from continuing operations has reported a CAGR of 14%, with continuous upward movement.  The company is taking necessary steps to expand EXPAREL®’s label, which should increase demand for the drug amid COVID-19 impact. Considering the above factors, we have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in % terms). Hence, we recommend a “Buy” rating on the stock at the closing price of $41.01, down 4.64% on 13 May 2020. 
 
 
PCRX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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