Pacira Raises Wall Street Expectations of a New Blockbuster Painkiller

5/19/11Follow @arleneweintraub

The last time Xconomy checked in with Pacira Pharmaceuticals (NASDAQ: PCRX), in early 2009, the company was laying off a third of its workforce in the wake of a disappointing clinical trial of Exparel, a treatment for post-surgical pain. Pacira was capital-constrained because the market for life-sciences IPOs was all but dead. And the future was far from certain for the company, which has corporate offices in Parsippany, NJ, and manufacturing and R&D operations in San Diego.

Fast-forward two years and it’s pretty clear Pacira’s fortunes have changed, so much so that the company was able to pull off an IPO in February. Pacira’s executives have been busy presenting data on its pain treatment, most recently at a medical meeting on May 17, when they announced positive results in patients undergoing hemorrhoid surgery. Pacira’s stock is now trading at $10.30—a 47 percent premium to its offering price, and a clear signal that Wall Street fully expects the FDA to approve the pain treatment by its scheduled PDUFA date of July 28.

The main conference room in Pacira‘s Parsippany headquarters bears a sign reading “Exparel War Room”—a fitting description of what the company has been through in the years leading up to, and including, the IPO. “This is the hardest thing I ever did in my life,” declares CEO Dave Stack, a pharmaceutical industry veteran and partner at MPM Capital, who did stints at The Medicines Company, Innovex, and others before being brought in to lead Pacira’s turnaround in 2007.

Pacira was originally DepoTech, a San Diego company that developed a controlled-release drug-delivery technology called DepoFoam. UK-based SkyePharma acquired DepoTech in 1998, but struggled to manage the asset, Stack says, so a syndicate of venture capitalists bought it in 2007 and reformed it as Pacira.

The VCs—MPM, HBM BioVentures, OrbiMed Advisors, and Sanderling Ventures—chose Stack to run Pacira primarily because of his track record. At The Medicine’s Company, Stack and his team developed a marketing plan for the blood thinner bivalirudin (Angiomax) that entailed going into large hospital chains and reviewing the charts of patients who had been given heparin—a cheap and well-accepted alternative to the newer product. Stack and nine cohorts (all of whom are now at Pacira) determined a set of characteristics that could predict which patients were most likely to develop bleeding incidents from heparin that would keep them in the hospital for several extra days. “We wrote algorithms that allowed hospital computers to flag patients” who were most likely to respond badly to heparin, Stack explains. “Then they could say, ‘We should be using Angiomax instead.’”

It worked: bivalirudin turned into a $400 million-a-year product.

Stack has developed a similar plan for marketing Exparel, which is a long-acting version of the pain drug bupivacaine. After major surgeries, bupivacaine is commonly injected into the tissues surrounding the surgical wound. It typically provides pain relief for about eight hours, after which patients are given opioids such as morphine, which can cause serious side effects, particularly in the elderly. Pacira’s formulation of the drug is also injected into the wound, but it provides pain relief for up to three days. That may allow patients to reduce their use of opioids—or better, to bypass them all together.

But Pacira’s quest to convince the FDA that its treatment belongs in the crowded market for pain relievers didn’t go well at first. The agency gave Pacira a choice between doing one placebo-controlled trial or two trials of its formulation vs. regular bupivacaine. The company’s original management team chose the second route—a mistake, Stack says, because the trials didn’t shed enough light on whether the Pacira treatment would reduce opioid use post-surgery.

In the new Phase 3 trial, performed under Stack’s watch, patients undergoing bunion or hemorrhoid surgery were randomized to receive placebo or Exparel, but they were all given the choice of receiving opioids like morphine for pain after their surgeries. The study showed that patients on the Pacira drug consistently waited longer to request additional pain relief—and some never requested opioids at all. In the end, Pacira was able to show that overall opioid use was significantly lower with its treatment in both bunion and hemorrhoid patients.

Pacira went public at $7 a share—significantly below the original target of $12 to $14—but the company eventually found a receptive audience on Wall Street. Jonathan Aschoff, an analyst for Brean Murray Carret & Co. wrote in a March report that even if the company’s pain treatment only captures a small portion of the surgical opportunities, “we consider it a likely event that total revenue will eventually exceed $1 billion.” His price target on the stock is $20. Barclay’s, Piper Jaffray, and Wedbush also initiated coverage of Pacira with optimistic outlooks.

Pacira’s sales pitch to hospitals and insurers will be far from easy, however. So Stack is turning his attention to assembling a new set of studies designed to convince healthcare payers that the Pacira product will save them money over the long run. “We’ve written a number of articles on what it cost to control pain in 2010, and a series of articles on opioid adverse events and what the cost of those would likely be,” he says.

Pacira is now teaming up with six large hospital chains to review patients’ charts—similar to what they did when they were launching bivalirudin at The Medicines Company. They plan to pinpoint exactly how inadequate pain control costs hospitals too much money. “We’re determining where post-surgical pain control with morphine leads to inappropriate resource utilization,” Stack says, which often occurs because patients suffer side effects that keep them in the hospital for days on end. “We’re setting the stage for what we’re going to compare ourselves to,” Stack says.

Stack says he’s in the process of rebuilding Pacira, and the company’s headcount has risen from 70 to 100 in advance of Exparel’s expected launch. The company brought in about $42 million in the IPO, roughly half what management was hoping to raise. The offering led the Wall Street Journal to include Pacira in a list inauspiciously titled “Biotech IPOs Continue Bleeding Money,” but Stack wasn’t fazed. “I’m still disappointed with the $7 offering price, but if you ask me if I’m sorry we went public, the answer would be a resounding ‘no,’” Stack says.

Pacira is planning other uses for the DepoFoam platform, including long-acting treatments for cancer and rheumatoid arthritis. Stack also points out that Pacira not only owns the worldwide rights to Exparel for human use, but it also owns the rights to develop it for the veterinary market, where bupivacaine is also the standard of care. Pursuing opportunities like those takes capital. Says Stack: “We have a lot of strategic opportunities to fund the company now that we would not have if we were private.”

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