Pacira boosts non-opioid pain portfolio via $450M Flexion buy, with more CVR payments to come

Zilretta
The addition of Zilretta plus two clinical-stage pain drug candidates “aligns with the Pacira mission to provide an opioid alternative to as many patients as possible,” the company said. (Flexion)

Delivering postsurgical analgesic Exparel to blockbuster land is no longer enough for Pacira BioSciences’ appetite. The company is now reaching for its mergers and acquisitions war chest to expand its non-opioid pain management offerings.

Pacira is buying Flexion Therapeutics for an equity value of about $450 million, or $630 million including debt, the two companies said Monday.

The deal gives Pacira Zilretta, an extended-release treatment for osteoarthritis knee pain. The addition of Zilretta plus two clinical-stage pain med candidates “aligns with the Pacira mission to provide an opioid alternative to as many patients as possible,” the company said in the statement.

Pacira will buy Flexion’s shares at $8.50 apiece, a 47% premium to their previous closing price. Flexion opened trading today at $9.85 per share. The deal is heavily backloaded, with a cash payment of up to $8-per-share saved as a nontradeable contingent value right (CVR).

Flexion shareholders may receive $1 per share of payment if Zilretta sales in a full calendar year reaches $250 million. Additional $2 and $3 per Flexion share are payable once the drug’s annual haul hits $375 million and $500 million, respectively. The deadline for achieving those milestones has been set for the end of 2030.

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Zilretta’s performance is currently nowhere near those numbers; approved by the FDA four years ago, it brought in sales of $52.8 million in the first half of 2021. But in an investor note in August, RBC Capital Markets analyst Daniel Busby projected Zilretta’s revenues could reach $300 million in 2023 and $519 million in 2025. And that doesn’t include a potential label expansion in osteoarthritis shoulder pain, for which Flexion expects to start a phase 3 this year.

“We also see strong potential for establishing a repeat dosing regimen for non-opioid pain management over the longer-term horizon,” Pacira CEO Dave Stack said during a conference call Monday. Busby has projected Zilretta's use could be increased to 1.6 injections per patient—from 1.1 in 2020—by 2023.

But that doesn’t mean Zilretta’s performance is satisfactory now. Together with Monday’s deal announcement, Flexion unveiled that it expects Zilretta sales to decline sequentially to around $21 million to $23 million for the third quarter. The company blamed the disappointing showing on pandemic-related challenges, manufacturing failures and disruptions from rebate program adjustments.

Flexion was once rumored to be in Sanofi’s M&A crosshairs for a $1 billion-plus deal in 2017. But the small firm’s stock price has since slid from a high of around $30 per share thanks to lackluster Zilretta sales.

Busby’s projections appear more bullish than Wall Street’s overall estimates. Consensus currently has Zilretta 2023 sales at $254 million and calculates it could hit $500 million in 2027, according to Wells Fargo analyst Jacob Hughes.

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Beyond Zilretta, the approvals of two Flexion pipeline drugs by 2030 are each linked to an additional $1-per-share payment. FX201 is a gene therapy candidate that delivers a gene to make an interleukin-1 receptor antagonist in the joint to clamp down on the inflammation that causes pain in the joint. A phase 1b in moderate to severe osteoarthritis is slated to report results by year-end. FX301 is a painkiller called funapide delivered in a hydrogel for extended release. Flexion is developing the drug as a peripheral nerve blocker for postoperative pain.

Pacira’s bread and butter, Exparel, is also approved to manage local pain following surgery. A combination of the two businesses will offer greater value than each firm on its own in terms of sales and marketing outreach and R&D, Ron Ellis, Pacira’s business development head, said during the call. What’s more, the two firms’ manufacturing sites are also close to each other in Swindon, the U.K.

For Exparel, Pacira in August reported second-quarter sales of $130.1 million, well above expectations, with sequential growth in each consecutive month. The company has an ambitious five-year plan to grow Exparel into a blockbuster by 2025.