EXPAREL is far from being a blockbuster drug

Pacira Pharmaceuticals (NASDAQ:PCRX) has been one of the most exciting growth stories in the stock market. Shares of the company soared more than 1000% since 2011. Pacira’s market cap is now roughly $3.2 billion.

EXPAREL, Pacira’s lead product, is a liposome injection of bupivacaine indicated for single-dose infiltration into the surgical site to release postsurgical pain. The product is currently approved for use in patients undergoing bunionectomy and hemorrhoidectomy procedures. In May 2014, Pacira submitted a sNDA to the FDA for the use of EXPAREL in total knee arthroplasty.

Patients who received EXPAREL showed a significantly reduced opioid consumption compared to bupivacaine (12 mg vs. 19 mg). Of course, EXPAREL is much more expensive than bupivacaine ($285 vs. $2 per vial).

Pacira launched EXPAREL in April 2012. Revenues have grown from $39 million in 2012 to $86 million in 2013, and are expected to reach $190 million in 2014. Wall Street analysts estimate peak sales for Exparel should exceed $1 billion, which means EXPAREL will be used in 4 million surgeries per year.

Table 1. EXPAREL revenues and operating expenses by quarter

  2014Q3 2014Q2 2014Q1 2013Q4 2013Q3 2013Q2 2013Q1
Revenues 50.2M 44.9M 34.4M 30.5M 20.0M 15.2M 10.4M
Expenses 53.0M 50.0M 45.9M 43.4M 36.1M 29.2M 30.2M

Personally I don’t think EXPAREL has blockbuster potential. The drug has generated only $220 million of cumulative sales in the first 30 months, which is far from being a blockbuster.

Although Pacira achieved triple-digit revenue growth in the past three years, the revenue base was somewhat small. Even in 2014, revenues grew, on average, only $7.9 million per quarter. Even worse, the company promoted EXPAREL for off-label uses and was warned by the FDA in September 2014.

Small companies always expend an amount of money which is greater than their revenues. Current revenues are still insufficient for Pacira to achieve profitability. In 2014Q3, Pacira spent $28.2 million on SG&A, accounting for 54% of total revenues.

Fortunately, gross margin* barely increased to 61% in 2014Q3 as a result of the increased utilization of facilities. The company expects the gross margin to be almost 80%, while the EBITDA margin should be above 40% in 2016.

* gross margin=100%-cost of goods sold/product revenues

During May 2014, four executives including CEO and CFO sold their 94,780 shares. I hope this is only an indication of personnel needing some money.

Table 2. Insider selling during May 2014.

Name Title Shares sold Decrease in ownership
Andreas Wicki Director 44,780 2.7%
David Stack CEO 25,000 11.6%
James Scibetta CFO 15,000 39.5%
Laura Brege Director 10,000 45.5%

[1] Richard Pearson. Growing Pains: Pacira Stretched Very Thin Following Exparel Launch. Seeking Alpha. 2013-03-13.

[2] Markus Aarnio. Pacira Pharmaceuticals: 4 Different Insiders Have Sold Shares This Month. Seeking Alpha. 2014-05-11.

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