NOPAIN Policy May Increase EXPAREL Access, Yet Patent Risks Could Impact Future

Key Takeaways

• Implementation of NOPAIN policy and new J-code could boost EXPAREL access and revenue growth.
  
• Strategic partnerships and product development, including ZILRETTA and iovera°, enhance market opportunities and future earnings potential.
  
• Litigation risks and potential generic competition for EXPAREL could threaten exclusivity, impacting Pacira's revenue and margins amid resource-draining legal and clinical endeavors.

Catalysts

Engages in the development, manufacture, marketing, distribution, and sale of non-opioid pain management and regenerative health solutions to healthcare practitioners in the United States.

• The implementation of the NOPAIN reimbursement policy in 2025 could drive increased utilization of EXPAREL, enhancing revenue growth prospects.
  
• The new product-specific J-code for EXPAREL, effective January 2025, will streamline reimbursement processes and potentially increase revenue by enhancing access across different sites and payers.
  
• Strategic partnerships with GPOs, such as Vizient, could increase market penetration and bolster revenue, as more than 80% of EXPAREL business is expected to be under contract.
  
• Progress in the Phase III study of ZILRETTA for shoulder osteoarthritis, with potential approval in 2026, could open a significant market opportunity and positively impact future earnings.
  
• The development and potential approval of the iovera° smart tip for chronic low back pain could address a large unmet need, potentially driving future revenue and profitability.

Pacira BioSciences Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pacira BioSciences's revenue will decrease by 1.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -13.1% today to 16.6% in 3 years time.
• Analysts expect earnings to reach $118.8 million (and earnings per share of $3.11) by about December 2027, up from $-90.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $180.8 million in earnings, and the most bearish expecting $6.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.9x on those 2027 earnings, up from -10.1x today. This future PE is lower than the current PE for the US Pharmaceuticals industry at 18.6x.
• Analysts expect the number of shares outstanding to decline by 6.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Pacira BioSciences Future Earnings Per Share Growth

Risks

• The litigation risks concerning the patent for EXPAREL, including an adverse ruling on their 495 patent case, suggest potential threats to Pacira's exclusivity, impacting future revenue and net margins.
  
• Potential generic competition for EXPAREL may lead to price erosion and reduced market share, which could negatively affect revenue and net earnings.
  
• Delays or difficulties in implementing the NOPAIN policy and reimbursement changes may impact the expected acceleration in revenue growth from increased EXPAREL usage.
  
• Flat sales in ZILRETTA and the potential for further deterioration in market demand could pose risks to revenue growth from this product line.
  
• The large-scale resource allocation to ongoing legal battles and upcoming clinical trials for products like iovera° and PCRX-201 could increase operational costs and pressure net margins.

Valuation

• The analysts have a consensus price target of $18.12 for Pacira BioSciences based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $39.0, and the most bearish reporting a price target of just $8.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $715.3 million, earnings will come to $118.8 million, and it would be trading on a PE ratio of 6.9x, assuming you use a discount rate of 5.9%.
• Given the current share price of $19.83, the analyst's price target of $18.12 is 9.4% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.