Pacira BioSciences (PCRX -2.08%) isn't a shooting star, but the company has been steadily increasing revenue and was profitable in 2020 for only the second time since its initial public offering (IPO) in 2011. The company specializes in developing presurgical and postsurgical non-opioid pain and regenerative health solutions. 

The company's stock is up more than 128% in the past year, and might be getting ready to go higher. It received good news earlier this week when the U.S. Food and Drug Administration approved the expanded label of its non-opiod painkiller, Exparel, for use with pediatric patients ages six and over, in a single dose, for postsurgical pain relief. How big of a deal is this for investors?

Mother and daughter speaking with a doctor.

Image source: Getty Images. 

Pacira's product stands out

Until now, there were no approved alternatives to opioids for managing severe postsurgical pain in pediatric patients. When injected into a surgical site, Exparel works as a nerve blocker, numbing the area for several days following a procedure.

In the wake of the opioid crisis, the need for non-opioid pain solutions is expected to boom. The non-opioid market is expected to grow into a $28 billion market by 2025 with a compound annual growth rate (CAGR) of 18.5%, according to a Market Research report.

What else to like about Pacira

A lot of elective surgeries and doctor's visits were delayed in 2020 because of the COVID-19 pandemic, but in spite of that, Pacira thrived, which signals that things might get even better as the world opens up again.

The company had record revenue of $429.6 million in 2020, a 2% improvement over 2019, including $413.3 million in revenue from Exparel's sales. The next best-selling therapy for the company was the $8.8 million in revenue from Iovera, a device that uses the body's natural response to freezing temperatures to deaden nerve pain. The company began counting Iovera sales last April after completing its purchase of private company, Myoscience, which owned the product.

Pacira is a relatively small pharmaceutical company with a market cap of a little more than $3 billion, so lack of familiarity with the company may explain why it is a bit underpriced. With a price-to-earnings (P/E) ratio of 21, it is well below the industry average of a 34.54. It also has a nice return on equity (ROE) of 31.34%, compared to the pharmaceutical industry average of 18.98%.

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A few concerns

My biggest worry about Pacira is that it's a bit of a one-trick pony: Exparel currently earns 96% of the company's revenue. If those sales were to slip, the company doesn't have much to fall back on. There are other non-opioid local analgesics that compete with Exparel for sales, such as lidocaine, bupivacaine (a generic equivalent of the active ingredient in Exparel), procaine, and ropivacaine.

While the company's revenue, EBITDA margin, and net income were up last year, the company's free cash flow fell 32%. One other area to worry about is the company's net income. It was up partly because the company paid less in taxes. That's likely to be a one-time benefit, something the company alluded to in its fourth-quarter earnings call.

It's likely to be a big year

The trend toward regional (or local) analgesics in surgeries has been growing for a while. They are considered safer than general anesthetics and are generally less expensive. Regional anesthetics such as Exparel can be safely administered in outpatient facilities and have the added benefit of a quicker recovery time for patients. Pacira's studies have shown that patients who are given Exparel generally need fewer opioids for pain after surgery.

In the company's fourth-quarter earnings call, Pacira CEO David Stack said that as many as 4 million elective procedures (such as knee, back, and bunion surgeries) were put off in the U.S. last year, and that the company would be in catch-up mode by the second half of this year.

Sales for Exparel reached $36 million in January, up 8% year over year, according to a recent Pacira investor presentation. The addition of pediatric patients to Exparel's label will help drive numbers for this pharmaceutical company. The rise of organized youth sports has also led to a greater incidence of overuse injuries. One study shows that shoulder and elbow injuries are up 500% in baseball and softball while anterior cruciate ligament (ACL) injuries of the knee are up 400%. That means more surgeries, more potential applications for Exparel, and good news for growth in returns for investors.